What is the difference between bank valuation and market value?

The difference between bank valuations vs market valuations

Rates and Fees verified correct on October 21st, 2016

How to spot the difference between market and bank valuations

When you put in an application for a home loan, your lender will send out an independent valuer to appraise the property and get an idea of the property's value. This is a conservative estimation of your property's value designed to give your bank a way to limit their risk and is different from a market valuation, which provides a more accurate representation of how much you'd make by selling your property at the right time.

The difference between a bank valuation and a market value

Again, the bank valuation generally will, in most cases, be lower than the recent market value because they are different. In addition to how much money to loan the borrower, a lender uses a bank valuation to figure out how much they might get if the property were sold. The lender will only sell a home where the borrower has serious financial issues, or is really late on the monthly mortgage payments so they may not be able to sell the property at the right time or circumstances.

The property's market value, however, is how much the homeowner would get for the home if it was sold by the owner. When selling a home, watching and monitoring the sale of other homes on the market is a crucial step. The seller then waits for the right time and the best achievable price, before selling the home.

What is a bank valuation used for?

The bank has to ensure that the home loan does not exceed the property value. 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.

In the sale of the home, the lender has to factor in real estate commissions, legal fees and other associated fees.

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

Note that many lenders offer free valuations as part of their home loans, so if you want to save yourself the $150 - $300 a valuation will cost, compare these loans today.

What buyers seek in a bank valuation

For a valuation, there are times when the bank has to access the interior of the home and sometimes, a valuation can be done on the exterior. When attempting to assess the value of a home, the bank may look at:

  • The general location
  • Zoning determined by the council
  • The general size of the property
  • The amount of rooms in the home
  • Vehicle accessibility to the property
  • The structure of the building
  • The condition of the building

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.

Bank valuations are more useful to the lender than to you. The market value is more important to you for informational purposes – this is to give you an idea of what other similar homes are being bought and sold for.

About free property valuations

What if the bank valuation is too low?

If the bank valuation comes in too low, you may have trouble securing a home loan in the amount you've applied for. This can cause serious problems when purchasing a home. There are a few avenues of redress, however:

  • 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.

Don's valuation nightmare

Don heads to an auction and is the winning bidder for a two-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.

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 maybe 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 range 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'.

Rates last updated October 21st, 2016
Loan purpose
Offset account
Loan type
Your filter criteria do not match any product
Product nameInterest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment
3.64% 3.64% $0 $0 p.a. 80% Go to site More info
NAB Choice Package Variable Rate - $250k to $749,999 P&I (Owner Occupier)
Enjoy discount on interest rates and save money with NAB National Choice Package home loan.
4.40% 4.79% $0 $395 p.a. 95% Go to site More info
Newcastle Permanent Building Society Premium Plus Package Home Loan - New Customer Offer ($150,000+ Owner Occupier)
Apply for a new owner occupier loan or refinance from another lender and receive this discounted rate.
3.85% 4.23% $0 $395 p.a. 95% Go to site More info
NAB Choice Package Home Loan - 3 Year Fixed (Owner Occupier)
Receive discounts on interest rates when you bundle into a NAB National Choice Package Home Loan.
3.89% 4.84% $0 $395 p.a. 95% Go to site More info
Newcastle Permanent Building Society Fixed Rate Home Loan - 2 Years Fixed (Owner Occupier)
Enjoy a low interest rate home loan. Borrow up to 80% (with mortgage insurance) of your home loan value.
3.69% 4.76% $0 $0 p.a. 95% Go to site More info
Westpac Flexi First Option Home Loan - 3 Years Introductory Special Offer (New Owner Occupier, P&I)
A limited time deal for new owner occupiers. Advertised rate includes 1.03%p.a. discount for the first two years.
3.89% 4.19% $0 $0 p.a. 95% More info
Commonwealth Bank No Fee Variable Rate - Owner Occupier
No fees and if you refinance to CBA before 30 April 2016 with your loan funded by the end of June you will receive $1,500 cash back. Conditions apply.
4.52% 4.52% $0 $0 p.a. 95% More info
4.17% 4.53% $0 $350 p.a. 80% More info

Marc Terrano

A passionate publisher who loves to tell a story. Learning and teaching personal finance is his main lot at finder.com.au. Talk to him to find out more about home loans.

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4 Responses to The difference between bank valuations vs market valuations

  1. Default Gravatar
    Keir | July 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.

    • Staff
      Shirley | July 7, 2014

      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.


  2. Default Gravatar
    | February 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.?

    • Staff
      Marc | February 27, 2014

      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.


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