What Happens at a Bank Valuation For a Mortgage?
Every lender requires some sort of valuation to be done on the property you are buying or refinancing. The property is the bank’s security for your loan, so the valuation is there to protect the lender.
Here’s what you need to know about the valuations if you are looking to buy or refinance
There are multiple types of valuations
Not every valuation requires an in person inspection, in fact these are becoming less and less common. Here are the main types of valuations we see:
Automated Valuation Model (AVM)
This is a digital tool and it’s the quickest method for a valuation. An AVM typically uses advanced modelling that looks at property data from the suburb, as well as market trends and multiple other factors, to estimate the property’s value. These typically only take a few minutes to complete, allowing for quick approvals if everything else stacks up. There is typically no human interaction at all with AVMs.
Desktop Valuations
Desktop valuations do have a human element; however, the valuer will review the property remotely. Sometimes they will ask for photos of the property, or simply look at the listing along with market data and recent sales to provide the estimated value. Often these are done within 24 hours.
Kerbside Valuations
Very similar to a desktop valuation, however the valuer will typically drive by the property to inspect the street appeal and exterior of the property.
Full Valuations
Full valuations rely on an in-person inspection of the property. These will typically be reserved for properties where there is not enough data to use an AVM or a desktop valuation, or where the LVR (loan to value ratio) is high. This is common in regional and semi-rural parts of Tasmania, where there are fewer comparable sales. They usually take around 3 to 5 business days to complete, depending on the area. However, they provide more accurate results, and can be a better option if there have been internal renovations to the property since photos were last taken.
Can you choose the type of valuation?
You can request to upgrade the type of valuation if you have a specific reason. A real-life example we see is clients who purchase their property, then complete internal renovations. When they come to refinance, an AVM or desktop usually can’t capture these changes, so we request a full valuation to accurately represent the property’s value. A higher property value can often reduce your LVR, which can help provide sharper interest rates in some instances. It can also help you avoid Lenders Mortgage Insurance (LMI) if it brings you under 80%. See our repayment calculator to see how a rate discount could help you. Or talk to us to request a valuation on your property.
What if the bank valuation comes in low?
If the valuation on a purchase comes back lower than the purchase price, the lender will then only allow you to borrow based off that valuation.
Example: Purchasing for $800k, valuation comes back at $750k. Previously 80% of $800k was $640k, now 80% of $750k is $600k. That’s a $40k drop in your loan amount, which you will need to cover the difference for, or pay the LMI fees that may be involved.
If this happens, your options may include challenging the valuation with recent comparable sales, trying another lender, or renegotiating the price with the seller.
Who pays for the valuation?
Some lenders choose to cover this cost; others will pass it on to the client. Most lenders cover AVMs and desktops. For full valuations, lots of the bigger lenders will cover the fee, while some smaller lenders charge between $300 and $500. Talk to us to find out more about this.
Will each bank use the same value?
No. Often banks will use different market data or valuers to determine the value. If you are refinancing and looking to maximise your equity as much as you can, a broker can sometimes order multiple valuations from different lenders to give you a variety of options. If you go direct to a bank, you’re usually limited to that lender’s valuation.
Thinking about buying or refinancing?
Talk to a broker, we can order the valuation required and give feedback on the best options for your situation.
