Understanding your properties value

For many, a home is beyond price—how can you quantify the value of a place where you’ve spent hours creating cherished memories with loved ones? It’s nearly impossible. Yet, the value of our homes inevitably becomes a cornerstone in every financial decision we make. Whether you’re considering upsizing or buying an investment property, the worth of your home plays a critical role. The price you secure during a sale will determine your budget for the next purchase, while the equity in your home will shape your borrowing power for your investment. Let’s dive deeper—read on to explore the different types of property valuations.

What is market valuation?

A market valuation is an estimated price range that a qualified valuer or real estate agent believes a property would fetch in the current market. Essentially, it represents the highest price a buyer is willing to pay and the lowest price a seller is willing to accept. This value is based on an assessment of what the property might sell for in an arm’s length transaction at a specific point in time. It’s important to note that only legally qualified valuers can provide a formal market valuation, while real estate agents can offer a market appraisal.

A market appraisal, on the other hand, is typically prepared by a real estate agent by comparing your property to similar properties that have recently sold in the area. While helpful, this appraisal is not legally binding and is simply the agent’s best estimate of your property’s worth. The market appraisal might differ from your reserve price—just because the property is appraised at a certain amount doesn’t mean you must accept it as the final selling price.

How do real estate agents calculate property value?

When agents assess a property’s value, they consider various factors, including:

• Property size: This includes the total land area, the size and quality of buildings, and the size of individual rooms.
• Outdoor areas and buildings: Features like garages, terraces, courtyards, and gardens play a role in valuation.
• Number of bedrooms: The number of bedrooms is a critical factor in the appraisal process.
• Fixtures and fittings: Not all fixtures and fittings are included in the sale, so agents consider what stays and what needs replacing.
• Areas for improvement: Agents may offer advice on how to increase the property’s appeal, but it’s advisable to consult with a vendor’s advocate who can manage the entire sale process.
• Location: The property’s location significantly influences its value. For example, properties in highly sought-after areas like Brighton command higher prices than those in more remote or developing areas.
• Building structure and condition: A property’s market value is affected by its structural integrity and any pest-related issues, as buyers often conduct inspections before purchasing.
• Planning and restrictions: Local council planning restrictions can deter some buyers, impacting the property’s marketability and value.

Real estate agents typically consider all these factors, among others, to provide a price estimation and recommendations before listing the property for sale.

What to do if the bank valuation is lower than the purchase price

While it’s not a common occurrence, there are several ways to address a situation where the bank’s valuation of a property comes in below the purchase price. If the valuation is significantly lower, the bank might choose not to offer a loan, as you may not have sufficient funds to cover the deposit. However, if the valuation is only slightly lower than the purchase price, the bank may still offer a loan based on the lower valuation, leaving you to cover the difference.

Steps to take if your property valuation is too low

In some cases, the initial valuation might be inaccurate. Ordering a new valuation from a more experienced organisation or a local valuation firm could resolve the issue, especially if the lender performed a “desktop” valuation without a physical inspection.

Alternatively, if the valuation results in a higher Loan-to-Value Ratio (LVR) than expected—say, 90% instead of the anticipated 80%—you may need to reassess your options.

Depending on your situation and the terms of your purchase agreement, you have several choices:

• Proceed with the purchase: If you are confident in the property’s long-term value and can cover the shortfall, you might choose to increase the loan amount or accept a lower loan offer from the bank.
• Revise or withdraw your offer: If you cannot cover the shortfall or do not believe the property is worth overpaying for, you might be able to revise or withdraw your offer through the finance clause, depending on its terms. This is why it’s crucial to have your solicitor review the finance clause to ensure you can terminate the contract if you’re unable to secure full financing.
• Auction purchases: If you bought the property at auction, the sale is usually unconditional, meaning you cannot back out due to financing issues. Withdrawing from the sale could result in the loss of your deposit and other penalties.
• Explore other lenders: Another option is to consult with a mortgage broker who can help you explore other lenders. A different lender might value the property higher and be willing to lend you the necessary funds.

If you want to find out the value of your property, get in touch with a UFinancial home loan specialist today, click here to book a chat.