How often do bank valuations come in low?
This is a question that normally pops up when sellers get the bank valuation back and are disappointed with the results.
And the answer is – More often than you think.
And when they do, it can blow out your property purchase plans.
A low bank valuation can be for many reasons including the valuer being conservative, recent market conditions or outdated comparable sales.
Knowing these and how to deal with them will help you navigate the home loan process and be prepared if a valuation shortfall occurs.
Are bank valuations always lower?
Yes, bank valuations are often lower than the local real estate agent’s price appraisal.
The valuation provided by a bank is typically conservative, as it reflects the estimated value a bank could recover if the property had to be repossessed and sold quickly.
How Bank Valuations Are Calculated?
Factors That Affect Bank Valuations
Bank valuations take into account multiple factors including:
- Recent sales of similar properties
- Current market conditions
- Location, size and condition of the property
The aim is to determine the fair market value but this can vary between lenders and real estate agents.
Understanding how to evaluate a house can give you insights into what factors influence the bank valuation.
The Valuation
The valuation process can be either a desktop valuation (using online data) or a full physical inspection by an independent valuer.
A kerbside valuation may also be used where the valuer assesses the property from the street without entering it.
Each method provides a different level of detail and may impact the final valuation report.
How Often Do Bank Valuations Come in Low?
Common Reasons for Low Valuations
Low bank valuations can be for many reasons. Market fluctuations, incomplete or incorrect comparable sales data or the bank’s valuer being conservative are common causes.
External factors like a market downturn or an oversupply of similar properties in the area can also result in a lower property valuation.
Low Frequency
While we can’t put an exact figure on how often bank valuations come in low, it’s not rare.
A study by the Australian Property Institute found that many valuations are lower than the purchase price agreed between the buyer and seller.
This can happen more often in a declining or unstable property market.
However, there are also cases where the opposite occurs, and it’s worth understanding what happens if the bank valuation is higher than the purchase price.
Low valuations are more frequent in a declining or unstable property market.
What to Do If Your Valuation Is Low?
If you get a low valuation don’t panic. First request a copy of the valuation report to understand why the valuation is lower.
Review the recent sales and market conditions used by the bank’s valuer. You can also get a second opinion by getting a professional property valuation from another lender or an independent valuer.
Options to Challenge a Low Valuation
Challenging a low valuation means gathering evidence of higher recent sales in the area or any improvements made to the property that weren’t considered.
You can submit this to the lender for a revaluation. Or negotiate a lower purchase price with the seller if the bank valuation is much lower than expected.
Effects of Low Valuations on Property Transactions
How Low Valuations Affect Buyers?
A low valuation can affect buyers big time. If the bank valuation is lower than the purchase price the lender may reduce the loan amount they are willing to offer.
This means buyers will need to cover the shortfall between the loan and the purchase price which could mean a larger deposit or finding extra funds.
This can put pressure on the buyer’s finances or even kill the deal if the extra funds can’t be found.
For first-home buyers a low valuation means they may have to re-budget or look for a different property that fits within the new loan limits.
Property investors will also be affected as the valuation shortfall will impact their overall strategy and return on investment.
Consequences for Sellers
Sellers are also affected by low bank valuations. If a buyer’s loan is reduced due to a low valuation the seller may be pressured to lower the price to match the bank’s valuation.
This can be frustrating especially if the seller thinks the property is worth more than the market value.
In some cases, the deal may fall through if the buyer can’t get the necessary funds and the seller will have to relist the property or negotiate with new buyers.
In such situations, working with an experienced professional is crucial, so it’s important to find a real estate agent who can guide you through the process.
How to Avoid a Low Valuation
Preparing Your Property for Valuation
To avoid a low bank valuation make sure you prepare your property well. This means keeping the property well maintained, doing any necessary repairs and providing the valuer with all the information about recent improvements or upgrades.
Present your property in the best light possible and it will influence the valuation process.
Tips for Accurate Valuations
- Provide Comparable Sales Data: Share recent sales in your area with the valuer to help them get a better picture of the property.
- Highlight Unique Features: Show the valuer any unique aspects of your property that may not be obvious, such as high quality materials or custom features.
- Choose the Right Time: If possible schedule the valuation during a good time of the market to increase the chances of a higher market valuation.
FAQs on ‘How Often Do Bank Valuations Come in Low?’
How much do banks undervalue houses?
Bank valuations can sometimes be 10%-20% lower than the current selling prices of comparable homes. This conservative approach is intended to mitigate the bank’s risk in case of default.
What happens if a bank valuation is less than an offer?
If the bank valuation is lower than the offer price you’ve agreed on, you may need to adjust your loan application. The bank will only lend based on their valuation, which could mean you’ll need to cover the difference out of pocket or renegotiate the purchase price.
What happens if the valuation comes back lower?
When a valuation comes back lower than expected, it means the property’s value does not align with the loan amount you’ve applied for. This situation, often called a down-valuation, typically results in the bank offering a lower loan amount, which could require you to increase your deposit.
How accurate is a bank valuation?
Bank valuations are generally conservative. They reflect the amount the bank believes it could recover if it needed to sell the property quickly after repossession. This cautious approach focuses on the numbers and potential recovery value rather than the market’s current conditions.
Can I Appeal a Low Valuation?
Yes you can appeal a low valuation but you need solid evidence. To challenge a low valuation gather data on recent sales of similar properties that support a higher market value.
Submit this data to the lender and sometimes they will revalue. But the success of an appeal varies with the lender and the strength of your evidence.
How long does a bank valuation take?
The time it takes for a bank valuation to be done can vary. A desktop valuation can be done in a day, a full physical valuation can take several days to a week depending on the valuer’s schedule and the property’s complexity. Make sure you factor this in when buying a property.
