Most lending applications in Australia, before being approved, require a bank valuation to be completed. This is where lending can get complicated as the bank’s definition of value and that employed by the free market tend to be poles apart.
According to leading Melbourne Mortgage Broker What If We Finance, “most people believe value pertains to the price a willing seller or buyer are prepared to exchange the property for when they are not under pressure to sell. Bank valuations, on the other hand, employ a different principle – often referred to as market value.”
Research and experience by What If We Finance shows banks tend to value property at the price that can be achieved over a short period of time – usually one to three months. Most bank valuers will look for evidence to support their valuations.
They will look for sales of similar properties in the past 6 months and as the property market can be quite dynamic, this can produce results in valuations that do not make sense.
What is the importance of bank valuations?
When you want to refinance, buy a new property, or access your home’s equity, the bank has to ensure they’re not lending you more than the property’s value. This is the primary importance of a bank valuation for a mortgage.
For instance, a bank will use valuations to determine the value of your property that will act as security against your home loan. If you’re no longer able to make repayments or you have difficulties with the loan, the bank will have to sell the property to pay the loan back.
But banks will only sell your home if you’re really behind with your mortgage repayments or you’re having serious trouble with the loan. If a bank has to quickly sell your home, it may be at a price lower than what you initially asked for.
During a bank valuation, these are the details that a bank looks at to work out the value of a property:
- Council zoning and general location
- Overall number and size of the rooms
- Vehicle access to the property
- Fixtures and fittings
- The condition and structure of the building
- Recent sales in the area and other market conditions
Is bank valuation an art or a science?
Based on the experience of What If We Finance, bank valuers are typically not influenced by properties on the market. Generally, sales must have occurred within the last 6 months.
Bank Valuers will consider the features of a property but as no two properties are completely the same or identical, valuations tend to be less of a science and more of an art.
Bank Valuers are also often responsible for specific neighbourhoods and suburbs and they may only know the area to a certain extent. They will drive out to their area of responsibility, take photos and then head back to the office and complete the valuation. They are often swamped with multiple property valuations and may not spend too much time on a single valuation.
What If We Finance says “we have had instances where a bank valuer lives and works in Malvern (a Melbourne suburb) and conducts valuations in Cranbourne. We found valuations from some banks are consistently lower.”
Why bank valuation of property is a complex “art”
Bank valuers typically rely on their own experience and knowledge of markets, market nuances and market dynamics to develop their opinion of a property’s market value. These behavioural components are largely known as heuristics, expert intuition and intuitive judgment.
But using these behavioural aspects in decision-making is not unique to bank valuations of mortgage. In fact, they are prolific across business, management, accounting and other disciplines.
It doesn’t matter whether the “scientific procedure” of bank valuation of property is conducted in the same exact way. The conclusion of the property’s value will vary from valuer to valuer – sometimes considerably. That’s because valuers use their knowledge, understanding and perceptions as basis for their interpretations. They never rely on just market transactions alone.
What influences the bank valuation of property?
With the uncertainties and complexities that come along with bank valuation for mortgage, what should you do to avoid a bank valuation coming below your expectations?
What If We Finance recommends you undertake the following:
Look at comparable sales
You can talk to real estate agents or look at property research reports. Be mindful a real estate agent may overinflate property prices or not use comparable properties.
If you know what goes on in your neighbourhood and you track local sales comparable to your property, have these available. Bank valuers tend to respond in a far more positive way if you’ve done your research and applied data to your estimate.
Don’t forget to clean up
Just as if you were having a guest over, the same goes for a bank valuation of your property — it doesn’t hurt to declutter, tidy up, repair and finish any renovations. A valuer will see past a thin layer of dust but overall, a well-presented property is easier to evaluate.
When preparing for a bank valuation for a mortgage, it’s helpful to think of it like an inspection and keep it as spic and span as possible. A tidy property creates a positive first impression and showcases your home’s full potential.
Easy to follow tips include:
- Mowing and tidying the lawn
- Cleaning bathrooms and kitchen areas
- Sweeping and vacuuming
- Providing good lighting and replacing lightbulbs if necessary
Commission your own valuation
You can ask a registered valuer to provide you with a valuation of your property. This service comes at a cost and the price will vary depending on the level of detail. Residential valuations start at around $500. Chose a bank panel valuer and tell the valuer the valuation is for bank mortgage purposes.
Registered property valuers are experienced and qualified in property valuation. They have expert knowledge in their local real estate market as well as in building methods, legislation and materials. You can find a registered property value on the website of the Core Logic Property Value.
Use a Mortgage Broker
Use an independent mortgage broker. Your Mortgage Broker can advise you on different bank policies and which banks tend to have the most favourable valuations this will ensure the bank valuation is in line with your expectations.
At What If We Finance, we have a team of mortgage brokers who ensure you avoid unnecessary costs associated with a product. Regardless of what type of loan you are applying for, we offer advice tailored to your specific goals and individual circumstance.
Contact What If We Finance today to ensure you get the best deal.