When considering a new loan or refinancing, the valuations process can be unknown for some. The idea of, or receiving, a valuation that’s not in line with your expectations might seem nerve-racking or disappointing. In reality, there are steps to prepare, and options at the end of it. You may have more control in the process than you think. 

Disputing a valuation figure can be tough, so due diligence is the best thing to do, to research your property’s place in the market and make sure you’re not paying too much. You’ll want to understand what relatable properties are selling in the area, and speak to the local real estate agent/s for their thoughts.

When applying for a loan or restructure (perhaps in the hopes of maximising your equity), it’s important to know every bank or lender has a different process for what type of valuation they’ll use, and how they’ll approach it. Loans seeking to borrow above 80% of the purchase price/market value of a home or higher are generally seen as higher risk, so will usually warrant a full valuation. That is a physical valuation, on-site, organised by your bank or lender. Different properties or security types and locations may have different requirements, e.g. high density apartments or rural properties may be considered higher risk and require full valuations.

Where a loan is deemed less risky (generally an LVR of less than 80%), a desktop valuation will typically be used. That’s where a loan’s health  the property is is assessed by a bank or lender, by computer with comparable sales. If a desktop valuation is run, a valuer will have no idea of any building or structural issues with a property. So declaring these issues, as savvy investors will know, will help you avoid securing too much in a loan structure that can bite you in the end. Repairs for large sums post-settlement, not originally factored into your loan equation may put you in financial stress. Building & Pest inspections, as well as visibility of recent strata reports, if purchasing an apartment, are an important part of this process. When purchasing, you should make a checklist ahead of time, or download our Cheat Sheets.

Crucially, if your valuation does come in a bit lower than the purchase price, this is not the end of the world. We’ve had two clients in just over the last year where this has occurred, and we worked for them to switch banks, finding one where their valuation and purchase price came in the same – so in the end, it gave the client a good outcome. That’s why having a good broker and using the right bank is really useful. If they had gone directly to the bank, they would have been stuck. They wouldn’t have known all their options. Bank A might tell you your property’s only worth $500k but Bank B might say your property’s worth $600k based on the data in their processes.

We had an instance recently where a difference in valuations meant a $320,000 variance in potential equity available for our client! You’ll want to be partnering with the right broker and lender, when variances of that capacity are at hand. (You can watch the video to see how we did it.)

How does it happen?… Some bank’s processes are written so that they refer to data from e.g 3 or 6 months prior. Depending on peaks and troughs in the market, you might be able to secure a valuation at a previous peak. With a lender confident that where there once was a peak, it is likely to rise in time again.

Not only do you have options, as a property investor, using a variety of banks in your portfolio, supported by the right broker can help accelerate your growth.