Property valuation is a vital step in getting a loan application. Before buying a house, you must know how much value the house you’re eyeing has in the current property market. A property valuation shows the property's current market value and is conducted by a Certified Practising Valuer or CPV.

Why is property valuation important?

The bank or lender you choose to work with will use the property value and report to determine how much of the property's value can be used as security for the loan or mortgage. Property valuation is crucial in securing a loan or mortgage that will allow you to buy the Sydney property you’re interested in. Without a property valuation, most lenders won’t consider your loan application.

You should know your options for valuation to determine how your property can have the highest value possible.

There are several types of property valuation methods:

1. Bank internal valuation or Automated Valuation Model

   An automated valuation model is most commonly used for low risk, solid home loan applications with a loan-to-value ratio (LVR) of 80% and below.

   This style of valuation can be used for both purchase and refinance applications.

   An AVM generally relies on both internal and external property data to determine the outcome of the valuation. A fully executed contract of sale and publicly available information from CoreLogic RP Data play a crucial part.

   The primary objective of an AVM is to provide a quick and fast property valuation outcome without engaging an independent licenced valuer, to help save time, and money and to provide convenience to the borrower and a faster approval process.

2. Desktop Valuation

   There’s also a desktop valuation, also called a desktop estimate, which is a property valuation conducted by the CPV and done remotely. The CPV will not personally inspect the property but will use publicly available information to determine the property valuation.

   Generally, desktop valuations are used when the property value is high, buyers have a strong application, and there is enough information about the property publicly available. Desktop valuations are also used when the loan amount is low and the property value is high. If the valuation is slightly inaccurate, there is still little risk to the bank or lender.

   It is important to note that a bank valuation may not consider any improvements or unique features of the property.

3. Kerbside Valuation

   Next is a kerbside valuation, which is what it sounds like - valuing the property from the kerb. The CPV will use reporting similar to desktop valuation to determine the property's value. Then the valuer will also visit the property and assess it from the street. This visit gives the CPV an idea of the property's condition based on an external assessment. They'll also evaluate it based on the property's surrounding areas.

   Usually, the kerbside valuation is used when the property is a vacant plot of land, not a house. Kerbside valuations are commonly reserved for buyers with solid applications and low-risk properties.

   It is important to note that a bank valuation may not consider any improvements or unique features of the property.

4. Short Form Valuation

   A short-form valuation is when the CPV physically visits the property, walks around the outside, inspects the interior condition, takes note of its kerb appeal, and looks for any structural damage.

   After visiting the property, the CPV will complete the valuation report based on what they saw and any available data regarding similar property valuations and recent sales in the area to arrive at a fair market value.

   The Valuer also take into consideration the property's location, land size, building structure and condition, council zoning, and other factors that could impact its value.

5. As If Complete Valuation

   An As If Complete valuation, or Upon Completion valuation, is rarely used and only employed if you want to complete renovations on your property or build a new structure. This type of valuation requires that the valuer has all the details about the planned upgrades or the cost of the total build, including the cost of fixtures, down to how many lightbulbs are used.

   One limitation to an As If Complete Valuation is that it uses current market reports and sales data from on or before the valuation to establish what the property's value will be worth when it is completed at a future date.

6. Long Form Valuation

   A long-form valuation is generally required when the construction value is over one million dollars. The construction is non-standard, such as two or more dwellings on one title (one block of land).

   A long-form valuation can be costly. It can cost between $2000 to $6,000, sometimes more depending on the size of the construction.

   A costing report is also required to be done by a Quantity Surveyor for the Financier, which generally costs around $3000.

Understanding the various valuations used when valuing a property is essential when buying or investing in a house or property. After all, the final property valuation will affect the outcome of your loan application. The kind of valuation used on the property you're interested in depends on the bank or lender's requirements, the type of property, and the valuation's purpose.

Looking to learn more about property valuations? Contact CCS Lending today and let us help you with your home loan needs.

General Advice Warning

The information on this site is of a general nature.

It does not take into account your objectives, financial situation or needs.

Before acting on any information, you should consider the appropriateness of the information provided and the nature of the relevant financial product having regard to your objectives, financial situation and needs.