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Property valuation: what you need to know when buying a home

family in a home

When buying a home, it’s good to know the market value. After all, you want to know you’re paying a fair amount. But the property’s value is an important consideration for your lender too. And their valuation may be quite different.

How much is a property worth?

The value of a property can vary depending on who is asking. When buying a home, you may come across different terms used to estimate its value, such as market value, market appraisal, and bank valuation. These terms can be confusing, but we'll break them down for you and explain how they affect your loan.

Market value vs. market appraisal vs. bank valuation

Market Value

  • Market value is an estimate of the expected sale price of a property on the open market. It is based on current market trends and is valuable to both sellers and buyers during price negotiations. It can also be used for tax purposes.

Market Appraisal

  • Market appraisal (also known as a market estimate) is usually conducted by a real estate agent and is often done to give homeowners an idea of how much their property could sell for in the current market.

Bank Valuation

  • Bank valuation is different from the other two types of valuations because it is conducted by a qualified valuer and is used by banks to assess the security of a loan. The bank valuation is typically lower than the market value because banks want to ensure that they can recoup their loan costs if the borrower defaults.

Bank valuation process

When conducting a bank valuation, the appraiser will consider the following factors:

  • Current market conditions: The appraiser will look at recent sales data in the area to determine the current market value of the property.

  • Physical attributes: The appraiser will also consider the physical attributes of the property, such as its location, size, condition, and amenities.

Pitfalls to watch out for

It is important to be aware of the potential pitfalls of bank valuations. For example, if the bank valuation is lower than expected, it may lead to the bank loaning you less than you hoped for. You may need to come up with extra funds to close the gap or pay lenders mortgage insurance (LMI), which can cost thousands of dollars. Alternatively, your loan application could be rejected outright.

How to avoid pitfalls

There are a few things you can do to avoid pitfalls related to bank valuations. First, it is a good idea to save up a buffer to handle any unexpected costs. Second, you should work with an experienced broker who can help you prepare for any potential issues.

Find out more

If you are on the hunt for the perfect home, let us help you track down the right loan and lender for you. We'll be there every step of the way to help you navigate the loan process with ease and get the keys in your hand.

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Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.


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