Preparing financially
Why a bank's valuation can differ from your purchase price
Desktop, kerbside and full valuations, why your loan is based on the lower of valuation and contract price, and what to do if the valuation comes in short.
- Your loan and LVR are calculated from the lower of the lender's valuation and your contract price, not the contract price alone.
- Desktop, kerbside and full valuations vary in accuracy — lenders choose based on risk.
- A short valuation can trigger unbudgeted LMI, a higher-rate LVR tier, a reduced loan amount, or a decline.
- Pre-approval does not confirm a specific property will value at your contract price.
Why the bank's figure can differ from the contract price
A lender values the property independently of the price you've agreed to pay, because the property is their security for the loan. A lender's valuation can come in below, at, or above your contract price — a below-contract valuation is the one with real financial consequences, since your loan and LVR are calculated from the lower of the valuation and the contract price.
Three types of valuation
Desktop valuation — an estimate from data and comparable sales, no site visit. Fastest and cheapest, but least precise.
Kerbside valuation — a valuer drives past and inspects the exterior only.
Full valuation — a valuer inspects inside and out. Most accurate, and the one lenders typically require for higher-risk applications (higher LVR, unusual property types, or where an automated estimate looks uncertain).
What happens if the valuation is short
If the valuation comes in below your contract price, your effective LVR rises (since the loan is based on the lower figure), which can trigger LMI you hadn't budgeted for, reduce your approved loan amount, push you into a higher LVR pricing tier that can carry a higher ongoing interest rate as well — the exact loading varies by lender, so ask directly rather than assuming a figure — or in some cases result in a declined application. Your options are typically: ask the lender to review the valuation against more recent comparable sales (this doesn't always succeed, but costs nothing to try), cover the shortfall with additional cash, ask another lender for a fresh valuation (valuations can genuinely differ between lenders and valuers), or renegotiate the purchase price where the contract allows it.
Practical checklist
If your valuation comes in short
- Ask exactly how much the valuation is short, and what type of valuation was used
- Ask whether the lender will review the valuation against more recent comparable sales
- Check whether covering the shortfall with cash keeps your LVR at an acceptable level
- Ask your broker whether a different lender might value the same property differently
- Check your contract's conditions for any right to renegotiate or withdraw
Questions for a professional
- What type of valuation will be used for my application, and why?
- If the valuation comes in below the contract price, what are my actual options?