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How do property valuations work?

By ,| 3 min read

Whether you’re wondering how much your home is worth or you’re about to buy a property, you’ve probably heard about property valuations.

In this article, we’ll explain what a property valuation is, when and why valuations are needed and who does them. We’ll also explore how much valuations cost, how long they take and how they differ from property appraisals.

What is a property valuation?

A property valuation identifies the estimated market value of a property – that is, what it’s likely to sell for in the current property market. This doesn’t mean a property will definitely sell for what it’s valued at – it’s pretty common for properties to sell for above their value, especially in a hot property market.

Property valuations are based on a number of factors including:

  • The size of the building and block of land
  • The property’s location (i.e. what is the access to transport and amenities like?)
  • The condition of the property
  • The number and type of rooms
  • The property’s fixtures and fittings
  • Ease of access to the property
  • Council zoning
  • Any heritage conditions
  • The property’s structure
  • The aspect, layout and topography of the property
  • Recent property sales in the area
  • Current housing market conditions.

When are property valuations needed?

There are a few situations in which you might need a property valuation. These include:

  • You’re purchasing a property and your lender requires a valuation to determine how much money they’ll lend you for the property
  • You’re about to buy a home and you want to make sure you’re not overpaying
  • You’re selling your home and you want to set a fair asking price
  • You’re refinancing your home loan and your lender needs a valuation to determine the value of your property, which helps figure out your equity
  • You need to formally determine the value of a property for a dispute or a deceased estate.

When a lender wants your property (or a property you plan to buy) valued for a new loan or a refinance, they will typically organise this process. You may not be charged a distinct valuation fee, but it could be factored into your standard home loan fees or interest rate.

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Why are property valuations useful?

While valuations are typically a lender requirement for obtaining a home loan, they can still provide helpful information for both buyers and sellers.

If you’re selling your home, having it professionally valued first can help you set a fair asking price. Although properties can often sell for more or less than the asking price, having a formal valuation can give you a solid starting point.

If you’re a buyer, having a property valued before you purchase can help you negotiate a price with a real estate agent, as well as prevent underinsurance, because you know how much the property is worth.

For home buyers, arranging a property valuation on a property you want to buy can help ensure you don’t pay more than what the property is worth. It can also give you an idea of how much a lender will allow you to borrow for the property.

Who does property valuations?

Property valuations are carried out by a qualified and certified property valuer. Property valuers can work independently or for banks and lenders.

If you’re searching for an independent valuer, make sure you check if they're registered as a Certified Practising Valuer (CPV) and see if they’re a member of the Australian Property Institute.

How much does a property valuation cost?

The price you’ll pay for a valuation of a property will vary, but it can range from around $300-$600 for an independent valuation.

If your lender requires a valuation when you purchase a property or refinance your home loan, it’s likely they’ll provide this service for free and factor this cost into your home loan fees or interest rate.

How long does it take to do a valuation?

Property valuations can take up to a week in total to complete. It will typically take around a day to complete a full property inspection, then several days after that to complete a full valuation report.

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Do banks always do a valuation?

As we’ve mentioned, lenders will require a property valuation when you want to take out a home loan for a property you’re purchasing, or when you want to refinance your loan.

A property valuation ensures that the property is of equivalent value or greater than the money you’re borrowing. This is because your property will act as security for the loan.

A valuation also might differ slightly from the purchase price of a property, so it can help lenders determine a borrower’s Loan to Value Ratio (LVR).

How are property valuations different to property appraisals?

If you’re on the hunt for a house, or you’re looking at selling, you might have heard of property appraisals.

Property appraisals are different from property valuations. They are completed by real estate agents to find an estimate of a home’s value.

They are typically free and are based on other properties in the area, recent sales data and the property’s features to come up with an estimate.

It’s important to note that unlike property valuations, property appraisals don’t have any legal standing and are just an approximation of a property’s value.

Check out our handy table outlining the differences between an appraisal and a valuation.

Property valuationsProperty appraisals
An assessment of a property's value in the current marketAn estimate of a property's value in the market
Conducted by a qualified property valuerConducted by a real estate agent
Can cost $300-$600, but a lender may pay for a valuation on your behalfFree
Can have legal standingNo legal standing
Needed for legal disputes and deceased estates, to secure a loan from a lender, for property settlement, and to calculate equity when refinancingTypically used by sellers to get an idea of what their home could sell for in the property market

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The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.

Tags: property, refinance, home loan, valuation, valuation fee, bank valuation, appraisal

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