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Bank valuation vs market value: What is the difference?

A market value is an indication of how much a property might sell for in the current market, while a bank valuation helps a lender determine its risks.

When you apply for a home loan, your lender will get an independent valuer to assess the bank valuation of the property you wish to buy. For the bank, property valuation risks are its main priority, so the bank valuation is a conservative estimate of the property's value. Its valuation assumes the bank may need to sell the property swiftly to recover losses, so the valuation is on the lower side.

A market value is an estimation of what the property would be likely to sell for if it was listed for sale on the open real estate market. This is important for a buyer or seller to take into account when working out their property budget, but both valuations will come into play.

Let's dive into the details to explain how both valuations impact you.

Bank valuations versus market valuations

Market valuations

  • Higher than a bank valuation. A market valuation assumes the seller wants the best price possible and isn't as desperate to sell as a bank. This is generally true, as a seller is motivated to try and get the best price on their home, even if it means waiting longer.
  • Takes the property market into account. A market valuation gauges the value of a property at a particular moment in time. It's more sensitive to the fluctuations of the property market. In a hot or booming property market, a market valuation could be much higher than a bank valuation.
  • More useful to buyers and sellers. Unlike a bank valuation, a market valuation is designed to help you decide how much to buy or sell a property for by comparing it to other, similar property sales. The bank valuation, on the other hand, will help you work out how much you can borrow.

Bank valuations

  • Lower than market valuations. The bank is estimating the price it would get for the property if it were sold in the event the buyer can't make repayments. Unlike a private seller, the bank is motivated by the urgency of selling a property to recoup its potential losses.
  • Selling costs. The lender also has to factor in selling costs, such as real estate commission, advertising, legal fees and other expenses related to the sale of a property.
  • More useful to the bank. A bank valuation isn't as useful for a buyer and the lender may not even choose to share the valuation with you – it is completely at its discretion. Knowing the bank's valuation can be useful to help you understand how much equity you have in an existing property.

What is a bank valuation used for?

The bank has to ensure that your home loan does not exceed the property value. This is because the home becomes the collateral for a home loan. For the lender, if there are complications with the loan and the borrower is unable to repay the loan, the lender might have to resell the property to recoup the amount of the loan.

If you forfeit repayment of the loan, the lender will quickly sell the home in order to avoid accruing interest over time. It is unfortunate, though, that the home may have to be sold at a lower price with the evident time limitations.

The bank does not always tell the borrower what the final valuation is. Bank valuations are done in order to work out the amount of money that you can responsibly pay back. The bank will sometimes use a number less than the home's market value and this is used for internal data to guide the lender and not necessarily to hide anything from the borrower.

Learn more about free property valuations

What happens if the bank valuation is too low?

If the bank valuation comes in too low, you may have trouble borrowing the amount you've applied for. This can cause serious problems when purchasing a home. You may need to find more money from somewhere else or your loan application may be rejected entirely.

However, there are a few avenues of redress:

  • Dispute the original valuation: You can dispute the valuer's original findings by providing evidence of sales of similar homes in the area. A warning, however: many valuers are unlikely to change their original valuation.
  • Request a valuation from a different valuer: You can ask that the bank use another valuer on its panel to perform a valuation. Most lenders will use more than one valuation firm, and a different valuer might provide a different result.
  • Cover the shortfall from somewhere else: If a new valuation fails to resolve the problem, you might have to look elsewhere to secure funds to cover the shortfall, whether it's borrowing from a family member or securing a personal loan.

Example: Don's valuation nightmare

Don heads to an auction and is the winning bidder for a 2-bedroom unit, with a bid of $750,000. He pays a 20% deposit of $150,000, along with stamp duty fees. He is pre-approved for finance at 80% LVR.

Before settlement, Don's bank sends a valuer to the home. The valuation comes back at $650,000, meaning the bank will only lend Don a maximum of $520,000, leaving Don $80,000 short.

Don requests a second valuation with similar results. He is now left to either borrow the $80,000 from his family or try to secure a personal loan.

* This is a fictional, but realistic, example.

How to find out your home's market value

To find out your property's market value, you should speak to a qualified valuation service and request an experienced valuer to come to your property.

A bank valuation serves as an internal regulatory and cautionary tool for lenders that reflects what reasonable amount can be recovered should it be necessary to reclaim and sell the property in a distressed state. This is the reason why the valuation price has to be lower than the market value. A bank valuation also protects the bank from risks. The market value is simply what the home is being sold for – at a particular time and in a specific market.

For more information about bank valuations and to get advice on the process during your property purchase, it may be a good idea to seek the services of a qualified mortgage broker. Brokers can help you find the right home loan, with part of the process including education and information regarding your valuation. You can compare qualified and accredited brokers.

Compare home loans with free valuations

There are a number of home loans with free property valuations. You can compare them below using the table. Click on the table headings to sort through loans according to interest rates, maximum LVR and fees. If you want to find out more about a loan, click "More info", and if you want to lodge an enquiry for a home loan, click "Go to Site".

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Name Interest Rate p.a. Comparison Rate p.a. Fees Monthly Payment
Principal & Interest20% min. depositOwner-occupierOffset account
Interest Rate
6.04%
Comparison Rate
6.08%
Fees
Application: $595
Ongoing: $0 p.a.
Monthly Payment
$905
Go to siteMore Info
$3,000 refinance cashback offer
Eligible refinancers who apply online and borrow $250K+ (LVR 80% or lower) can get a $3,000 cashback. Terms and conditions apply.
Principal & Interest40% min. depositOwner-occupier
Interest Rate
6.09%
Comparison Rate
6.11%
Fees
Application: $0
Ongoing: $0 p.a.
Monthly Payment
$909
Go to siteMore Info
Principal & Interest20% min. depositOwner-occupierRefinance
Interest Rate
5.99%
Comparison Rate
5.90%
Fees
Application: $0
Ongoing: $0 p.a.
Monthly Payment
$900
Go to siteMore Info
Principal & Interest20% min. depositOwner-occupierOffset account
Interest Rate
6.19%
Comparison Rate
6.43%
Fees
Application: $0
Ongoing: $250 p.a.
Monthly Payment
$919
Go to siteMore Info
Principal & Interest20% min. depositOwner-occupier
Interest Rate
6.14%
Comparison Rate
6.16%
Fees
Application: $0
Ongoing: $0 p.a.
Monthly Payment
$914
Go to siteMore Info
Principal & Interest20% min. depositInvestmentRefinance
Interest Rate
6.29%
Comparison Rate
6.20%
Fees
Application: $0
Ongoing: $0 p.a.
Monthly Payment
$929
Go to siteMore Info
Principal & Interest 2Y Fixed20% min. depositOwner-occupier
Interest Rate
6.59%
Comparison Rate
7.64%
Fees
Application: $0
Ongoing: $0 p.a.
Monthly Payment
$958
More Info
Principal & Interest 1Y Fixed20% min. depositOwner-occupier
Interest Rate
6.74%
Comparison Rate
6.49%
Fees
Application: $0
Ongoing: $250 p.a.
Monthly Payment
$973
Go to siteMore Info
Principal & Interest20% min. depositOwner-occupier
Interest Rate
6.14%
Comparison Rate
6.17%
Fees
Application: $449
Ongoing: $0 p.a.
Monthly Payment
$914
Go to siteMore Info
Principal & Interest40% min. depositOwner-occupierOffset account
Interest Rate
6.15%
Comparison Rate
6.40%
Fees
Application: $0
Ongoing: $248 p.a.
Monthly Payment
$915
Go to siteMore Info
Finder AwardPrincipal & Interest10% min. depositOwner-occupierOffset accountwith offset
Interest Rate
5.94%
Comparison Rate
6.05%
Fees
Application: $0
Ongoing: $10 p.a.
Monthly Payment
$895
More Info
Principal & Interest20% min. depositOwner-occupier
Interest Rate
6.09%
Comparison Rate
6.10%
Fees
Application: $0
Ongoing: $0 p.a.
Monthly Payment
$909
Go to siteMore Info
Principal & Interest20% min. deposit
Interest Rate
5.82%
Comparison Rate
5.82%
Fees
Application: $0
Ongoing: $0 p.a.
Monthly Payment
$883
More Info
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4 Responses

    Default Gravatar
    KeirJuly 4, 2014

    We have just received our bank valuation back for our house and land package and it came back much lower than we had expected. We paid $411k (including upgrades) and thought it would come back around $420k (given rapid growth in the area and it is a new estate). There are house and land packages with the same specs being sold around the corner from us for $460k.
    Should we appeal the bank valuation or arrange an independent valuation?
    It is super stressful knowing that we now have to find another $15k to get the loan over the line. We don’t know where to begin.

      AvatarFinder
      ShirleyJuly 7, 2014Finder

      Hi Keir,

      Thanks for your question.

      Generally a bank valuation is less than the market value as they’re different things. Banks use a bank valuation to work out how much they might receive if they sold the property, whereas the market value is usually how much you get if you sold the property yourself. If you have any questions or concerns, please discuss this with your lender.

      Cheers,
      Shirley

    Default Gravatar
    BernardFebruary 26, 2014

    if the house or apartment renovated with new kitchen, Bathroom , toilet and install air-condition total cost $20,000. Can I add this value to the property.?

      AvatarFinder
      MarcFebruary 27, 2014Finder

      Hi Bernard,
      thanks for the question.

      What a renovation costs might not necessarily equate to the same value. Some renovations might add less or more than their cost to the property’s value, so it’s always best to seek a professional valuation to see how much a renovation has effected the price of a property.

      Cheers,
      Marc.

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