Property Appraisal: What Homebuyers Need to Know

May 17, 2023
First Home Buyer Benefits in NSW

When buying property, 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 the property appraisal they do may show different results.

Just how much is a property worth? Well, it depends on who’s asking.

When buying a property you’ll find there are different terms to estimate how much it’s worth, including market value, market appraisal and bank value. These are all variations of the property appraisal.

And you’ll most likely find they can differ, which can be confusing.

Fortunately, we’ve got the low down to help you understand the difference. And how bank valuations affect your loan.

Market valuations vs market appraisals vs bank valuations

So, what is the difference between them all?

Market valuations

A market valuation, which is usually undertaken by a professional and qualified valuer, gives an estimate of the expected sale price of the property on the open real estate market.

It’s based on current market trends and is valuable to both sellers and buyers during sale price negotiations.

It can also be conducted for tax purposes for owners (ie. to calculate the taxable capital gain or capital loss).

Market Appraisal

A market appraisal (aka market estimate), on the other hand, is usually completed 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

But a bank valuation has an entirely different purpose when it comes to the property appraisal.

When you’re buying a home or refinancing your loan, the lender will often need to conduct a bank valuation.

And it can feel like a real sting if the bank valuation comes in lower than expected.

But there’s a reason for this.

Banks are in the risk mitigation business. So their valuation is designed to provide an estimate of the property’s sale price as security against your loan should you default.

The valuations can be more conservative because lenders don’t take into consideration the property’s value in terms of an investment.

They’re looking at the property in terms of recouping loan costs with a quick sale.

And, rather than being provided by a real estate agent who may have a vested interest in price, bank valuations must be conducted by an accredited valuer.

Bank valuation process

Property Appraisal

When conducting a bank valuation, typically, the following factors are considered by the valuer:

Current market conditions – just like with a market valuation, the current market climate and recent sales data for your area are examined.

Physical attributes – the location of the property, surrounding amenities, its layout, fixtures and features, size, structural condition, and council zoning information are considered.

Upon completion of the valuation, a report is provided to the lender to be used in assessing your loan application.

This brings us to our next point.

Pitfalls to watch out for

They say that being forewarned is forearmed. So here are some pitfalls to be aware of when it comes to bank valuations.

Say you apply for pre-approval, find a place and make an offer, but then the bank valuation is a lot less.

Or you pay a deposit on a $700,000 off-the-plan property, only to have your bank come back with a $650,000 bank valuation when it’s time to move in.

If the bank valuation is less 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.

Therefore, it’s a good idea to save up a bit of a buffer to handle any valuation headaches that may crop up.

Working with an experienced broker, like Soho Home Loans, can help you to prepare for any nasty surprises and make for a smoother home-buying journey.

More on the property appraisal process

Property Appraisal

What does it mean when a property is appraised?

A property appraisal is a process of determining the current market value of a property. This is done by a qualified professional, such as a real estate appraiser, who will consider a variety of factors, including the property’s location, size, condition, and recent sales of similar properties in the area.

How much does a property valuation cost?

The cost of a property valuation can vary depending on the size and complexity of the property, as well as the location and experience of the appraiser. In general, however, property valuations in Australia typically cost between $500 and $1,000.

How can I estimate the value of property?

There are a number of ways to estimate the value of a property without hiring an appraiser. One option is to use a online property valuation tool. These tools typically use a variety of data sources, such as recent sales data and property tax records, to generate an estimate of the property’s value. Another option is to contact a real estate agent, who can provide you with an estimate based on their knowledge of the local market.

Here are some of the factors that appraisers consider when determining the value of a property:

  • Location: The location of a property is one of the most important factors that affects its value. Properties in desirable locations, such as near schools, parks, or shopping areas, tend to be worth more than properties in less desirable locations.
  • Size: The size of a property also affects its value. Larger properties tend to be worth more than smaller properties, all other factors being equal.
  • Condition: The condition of a property also affects its value. Properties that are in good condition tend to be worth more than properties that are in poor condition.
  • Amenities: The presence of amenities, such as a pool, garage, or garden, can also increase the value of a property.
  • Recent sales: The recent sales of similar properties in the area can also be used to estimate the value of a property. Appraisers will typically look at the sales prices of similar properties that have sold within the past few months.

It is important to note that property values can fluctuate over time, so it is always a good idea to get an updated valuation before making any major decisions about your property.

Find out more with Soho Home Loans

If you’re on the hunt for the perfect home, let Soho Home Loans 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 help get the keys in your hand.

Soho is your expert team in Australian real estate, offering an innovative platform for effortless property searches. With deep insights into buying, renting, and market trends, we guide you to make informed decisions, whether it's your first home or exploring new suburbs.
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Our AI match engine will match you with over 150,000+ properties and you can swipe away or shortlist easily. Making your home buying journey faster and easier.