Property Valuation Guide

A bank valuation is one of the most important steps in the home loan approval process — and one of the least understood. The lender’s valuation determines how much they are willing to lend against a property, and if it differs from the price you’ve agreed to pay, it can derail your purchase or force you to find additional funds.

This guide explains how bank valuations work, the different types used by lenders, and what to do if you face a valuation shortfall. See also our home loan guide, buying a property, and the settlement process.

What Is a Bank Valuation?

A bank valuation (also called a lender valuation or mortgage valuation) is an independent assessment of a property’s market value, ordered by the lender and paid for by the borrower (or built into the loan costs). Its purpose is not to confirm what you’ve agreed to pay — it’s to determine what the property would sell for in an arm’s-length transaction in the open market.

Valuers are accredited professionals registered with the Australian Property Institute (API). They are independent of the lender, the agent, and the borrower.

Types of Valuations

Desktop Valuation (Automated Valuation Model)

A desktop valuation uses an Automated Valuation Model (AVM) — a software algorithm that analyses comparable sales data, property attributes, and market trends to produce a value estimate. No physical inspection occurs. Desktops are fast (often completed within 24 hours), low-cost, and suitable for:

Low-LVR refinances where the property is in a liquid market
Top-up applications where the loan increase is modest
Properties where recent comparable sales are abundant

Desktop valuations carry the most uncertainty. In volatile or thin markets, AVM accuracy can deteriorate significantly.

Drive-By (Kerbside) Valuation

A valuer attends the property and inspects the exterior only, supplemented by analysis of comparable sales and publicly available property data. They note the property’s street presence, visible condition, and land size. Drive-bys are used for moderate LVR transactions — typically 70–80% LVR — and take 2–5 business days to complete.

Full Inspection Valuation

The most thorough (and most expensive) form of valuation. A valuer inspects the interior and exterior of the property, takes photographs, notes the condition and any features affecting value, and prepares a written report citing at least three comparable sales. Full inspections are required for:

Loans above 80% LVR (LMI-backed loans)
Unusual or complex properties (heritage listings, rural properties, commercial-residential hybrids)
Construction loans at each draw-down stage
Properties where AVMs are unavailable or unreliable

Full inspections typically take 3–7 business days to schedule and report, depending on valuer availability in the area.

When Lenders Order Valuations

A lender will order a valuation whenever the loan-to-value ratio is central to their lending decision. Common triggers include:

New purchase application (once a signed contract of sale is available)
Refinancing to a new lender
Top-up or equity access (to confirm current market value supports the increased loan)
Construction progress draws (at each stage, to confirm the property is worth more than the drawn funds)

Market Value vs Bank Valuation

It is common for a bank valuation to differ from the price you agreed to pay. This can happen in both directions:

Valuation above purchase price: Good news — the lender is comfortable the property has value in excess of what you’re paying. Your LVR is lower than you thought.
Valuation below purchase price: The lender will only lend against the assessed value — not the purchase price. This is called a valuation shortfall.

A property you agree to buy for $900,000 valued at $840,000 creates a $60,000 shortfall. If you applied for an 80% LVR loan, the lender will now offer 80% of $840,000 = $672,000 (not $720,000 as you expected). You must fund the gap from your own resources.

How to Handle a Valuation Shortfall

A shortfall does not necessarily mean your purchase collapses. Options include:

Increase your deposit: Cover the gap from savings or equity in another property.
Request a second valuation: Ask your broker to have the file reviewed by a different valuer — or switch lenders whose panel valuers may assess the property differently.
Challenge the valuation: If you have evidence the comparable sales used are incorrect, your broker can formally challenge the report with the valuer or lender. Success rates vary but are sometimes effective for properties with unique features.
Renegotiate the purchase price: If the property has been sitting on market or you have leverage, a low valuation can be used as grounds to renegotiate with the vendor.
Accept a higher LVR (and pay LMI): If you go above 80% LVR based on the valuation value, LMI applies. This adds cost but allows the purchase to proceed without additional cash savings.

Upfront Valuations

Some lenders offer upfront valuations — ordering the valuation before full application and conditional approval. This is particularly useful at auction, where you are purchasing unconditionally. If an upfront valuation is favourable, you can bid with greater confidence. Lagos Financial routinely arranges upfront valuations for clients purchasing at auction.

Frequently Asked Questions

Who pays for the valuation?

Typically the borrower pays. Fees range from $250 for desktop valuations (sometimes nil with certain lenders) to $600–$900 for full inspections. Some lenders waive the valuation fee for refinancers or as part of a promotional offer. Ask your broker which lenders cover this cost.

Can I see the valuation report?

The valuation is commissioned by and belongs to the lender — you do not have an automatic right to see it. However, most lenders will provide a summary (the assessed value and sometimes the key comparables) on request. If you’re challenging a shortfall, your broker can request the full report.

Does the bank’s valuation matter if I’m paying cash?

No — if you’re purchasing without a mortgage, no lender valuation is required. However, it’s still wise to arrange an independent valuation through an API-certified valuer before paying a premium price, particularly for unique or complex properties.

How do construction properties get valued?

For construction loans, the initial valuation is an “as-if-complete” assessment — what the property will be worth once construction is finished. Progress valuations then occur at each draw-down stage to confirm the work has been completed and the security is sound. See our construction loan guide for more detail.

Get Expert Advice from Lagos Financial

With close to 20 years of experience and access to 60+ lenders, Victor Lagos and the Lagos Financial team can help you find the right loan for your situation. Book a free assessment or call us to discuss your options.

Our Services

Locations: Sydney | Brisbane | Melbourne | Launceston | Hobart

About the Author
Victor Lagos is a licensed mortgage broker (ACL 546774) and founder of Lagos Financial, with close to 20 years of finance industry experience since beginning his career at Bluestone Mortgages in 2006. A member of the Finance Brokers Association of Australia (FBAA) since 2015 and the Australian Financial Complaints Authority (AFCA — 98399), Victor helps Australians build wealth through tailored home loan and property investment strategies, working with 60+ lenders nationwide. Last reviewed: March 2026.

Property Valuation Guide | How Bank Valuations Work