When purchasing or refinancing a property in Australia, understanding the different types of property valuations used by lenders is crucial.

Property valuations are an integral part of the lending process, providing an estimate of the property's value to ensure that the loan amount reflects the property's worth.

Types of Property Valuations

1. Full or Comprehensive Valuation

Overview: A full valuation, also known as a comprehensive valuation, is the most detailed and thorough type of property valuation. It involves a physical (walk through) inspection of the property by a qualified valuer.

Usage Conditions: This type of valuation is typically used for high-value properties, complex properties, or when a borrower is seeking a loan with a high LVR. It is also commonly used when there are concerns about the property's condition or when there are unique features that require a detailed assessment.

What’s included:

Physical Inspection: The valuer visits the property to inspect its condition, layout, size, and any unique features.

Market Analysis: An analysis of recent sales of comparable properties in the area.

Risk Assessment: Identification of any risks that could affect the property's value, such as environmental factors or zoning issues.

Detailed Report: A comprehensive report is provided, detailing the property's market value, strengths, weaknesses, and any potential risks.

2. Kerbside Valuation

Overview: A kerbside valuation, also known as a drive-by valuation, involves a valuer conducting an external inspection of the property from the street without entering the premises.

Usage Conditions: This type of valuation is often used for lower-risk properties and loans with LVR of 80% or less. It is also utilised when a quick assessment is needed, and there are no significant concerns about the property's condition.

What’s included:

External Inspection: The valuer observes the property from the street, assessing its external condition, location, and surrounding area.

Market Comparison: Comparison with recent sales of similar properties in the vicinity.

Brief Report: A shorter report is provided, focusing on the external condition and location of the property.

3. Desktop Valuation

Overview: A desktop valuation is a remote assessment of the property's value, conducted using available data and technology without any physical inspection.

Usage Conditions: Lenders use desktop valuations for low-risk properties, refinancing existing mortgages, or when the loan-to-value ratio (LVR) is low. It is also common for properties in well-established areas with plenty of comparable sales data.

What’s included:

Data Analysis: Utilisation of data from property databases, recent sales, and online property listings.

Automated Valuation Models (AVMs): Use of AVMs to estimate the property's value based on statistical models and algorithms.

Report: A report generated based on data analysis, without physical inspection.

4. Automated Valuation Model (AVM)

Overview: An AVM is a fully automated valuation that uses statistical models and algorithms to estimate a property's value based on large datasets.

Usage Conditions: AVMs are typically used for very low-risk properties, refinancing, or when the LVR is particularly low. They are popular for properties in areas with high volumes of comparable sales data.

What’s included:

Data Aggregation: Aggregation of data from various sources, including property sales, listings, and market trends.

Algorithmic Analysis: Use of complex algorithms to estimate the property's value.

Instant Report: Immediate generation of a valuation report, providing a quick estimate of the property's market value.

Challenging a Lender's Valuation

There are circumstances under which a property owner might feel the need to challenge a lender's valuation. Here are some scenarios and steps to consider:

Grounds for Challenging a Valuation

Significant Discrepancy: If the valuation is significantly lower than expected or differs markedly from other recent valuations of similar properties.

Inaccurate Data: If the valuation report contains incorrect information about the property, such as incorrect property size, condition, or comparable sales data.

Market Changes: If there have been significant market changes or recent sales that have not been considered in the valuation.

Steps to Challenge a Valuation

Request a copy and review the valuation report to identify any inaccuracies or discrepancies.

Gather Evidence: Collect evidence that supports your claim, such as recent sales data of comparable properties, independent valuations, or evidence of market trends.

Submit a Formal Request: Get your brokers assistance to submit a formal request for a review of the valuation, providing all supporting evidence.

Seek an Independent Valuation: Consider commissioning an independent valuation from a qualified valuer to provide an alternative assessment.

Negotiate with the Lender: Engage in negotiations with the lender, presenting your case and the supporting evidence. In some cases, lenders may agree to review the valuation based on the new information.

Considerations

Cost and Time: Challenging a valuation can be time-consuming and may incur additional costs for independent valuations.

Outcome: There is no guarantee that the lenders valuer will agree to revise the valuation. It is important to have realistic expectations and be prepared for the possibility that the original valuation may stand.

Understanding the different types of property valuations used by lenders in Australia is essential for both aspiring and existing property owners.

Each type of valuation serves a specific purpose and is utilised under different conditions, providing varying levels of detail and accuracy. While it is possible to challenge a lender's valuation, it requires careful consideration, substantial evidence, and an understanding of the potential outcomes.

By being informed about the valuation process, borrowers can better navigate the complexities of property financing and make more informed decisions.

For further information and resources on property valuations and financing in Australia, borrowers can refer to authoritative sources such as the Australian Property Institute (API) and the Australian Securities and Investments Commission (ASIC).

These organisations provide valuable insights and guidelines to help borrowers understand the intricacies of property valuations and the broader real estate market.