When it comes to buying property, there are a few moving parts to consider – and one important piece of the puzzle is getting a bank valuation. A bank valuation is (as the name implies) the value of the property as decided by a lender, often using an independent valuer.
A bank valuation can have an impact on your borrowing power. After the valuation, the bank will use this number to work out the loan-to-value ratio (LVR). Essentially, your LVR percentage is your loan amount divided by the bank’s valuation of your property – and it helps the lender weigh up the risk of approving a home loan. Lenders generally ask for a 20% deposit (that is, 20% of the value of the property), which equates to an 80% LVR. An LVR higher than 80% will generally incur lenders mortgage insurance, which can be an important cost to factor in.
Higher LVR’s are considered riskier for both the lender and borrower and will impact the amount you can borrow. It’s in everyone’s interest to ensure you can repay your loan – and bank valuations help us do that.
How banks value property
When calculating the value of a property, there are a few things banks take into consideration, including:
- council zoning, planning and restrictions
- property and land size
- number of bedrooms
- building structure and condition
- fixtures and fittings
- vehicle access to the property (driveways) or garage
- recent sales and similar properties in the area
- areas for improvement
Sometimes the valuation can be carried out from the street and then compared to recent sales data for similar properties in the area. Other times access inside the property might be needed for a more thorough inspection. Your local Home Finance Manager will let you know if this is the case.
Bank valuation vs. market estimate
You might have heard these terms mentioned when talking about buying or selling property – but what’s the difference? In short, a bank valuation is about how much you can borrow and mitigating risk for the lender if things were to go wrong, while a market estimate involves your real estate agent estimating the property's potential selling price. But let’s dig a little deeper.
Bank valuations (also known as property valuations) are usually performed by an independent valuer and are typically a more conservative estimate of the property's value. Why? Mainly so the bank doesn’t lend more than the value of your property. This valuation also takes into account any scenarios where you might not be able to make home loan repayments, and need to sell the property quickly to pay back the loan and recover losses. This conservatism in bank valuations is driven by various reasons including responsible lending requirements and the bank’s risk appetite.
Things to remember about bank valuations
- Used by banks for lending purposes only
- May be lower than the market valuation or selling price
- Safeguarding against risk and generally more prudent
A market estimate is an estimate of how much the property may sell for on the real estate market. This number is based on the market value and recent sales data - and is more sensitive to property market fluctuations and trends. In a booming property market, a market estimate could be higher than a bank valuation.
Things to remember about market estimates
- Determined by real estate agents
- Reflect what’s happening in the property market and market conditions
- Generally (but not always) higher than the bank valuation
Bank valuations and buying a home
As mentioned, bank valuations are sometimes lower than the market valuation. But what happens when you’d like to purchase a property and the bank valuation comes in lower than expected?
You may have trouble borrowing the amount you've applied for. This doesn’t mean the property is out of reach. The key thing to remember here is LVR. A lot of banks won’t lend if the LVR is more than 95% - it’s too risky. If the LVR is above 80%, you may need to pay Lenders Mortgage Insurance (LMI) to help manage the level of risk the bank is taking on.
Bank valuations happen as part of the home loan application process. So if the bank valuation is lower than the amount you’ve agreed to pay for your new home, you may need to do a bit more work to get the loan application over the line. To make up the shortfall, you could leverage existing equity you might have, find more money to top up your deposit or look at having someone act as guarantor.
Selling your home
When it comes to selling your property, you won’t need a bank valuation – but you might consider getting a market estimate from your real estate agent. You’ll want to get the best price possible - and a higher market estimate might help push the purchase price up a couple of notches. Here are a few tips and tricks to help increase your chances of nabbing a higher estimate.
Presentation is key
A tidy, well-maintained property can have a big impact on its estimated value. As the saying goes: first impressions are everything. Think of your market estimate as you would an open home. Do a proper deep clean, tidy away any clutter and make sure your lawns and gardens are in top shape. A little effort goes a long way and could make a real difference to your property price.
Showcase your (hidden) assets
Although you’re not selling your home to the agent, it doesn’t hurt to highlight some of its key features (especially if they’re not immediately obvious). Pull together a list of everything your home has to offer and make it available to the agent. This could be things like a newly-installed reverse-cycle air conditioner, solar panels, fresh carpet or top-of-the-range appliances. These small things could help increase your property price.
Know your neighbourhood
Your home’s features aren’t the only factors that can affect its value. If there are any community plans in the pipeline for your neighbourhood, it could be a good idea to give the agent a heads up. Things like a new playground or bike path could be seen as adding value to the area – and could potentially increase the property price for the estimate.
Ready to take your next step?
Whether you’re interested in buying or selling, we’re here to help – every step of the way. For more information about bank valuations, you can call us on 131 900, or visit a branch to chat to your local Home Finance Manager.