When you’re applying for a home loan, one of the important steps in the process is the property valuation. This valuation helps lenders determine the market value of the property you’re buying or refinancing, ensuring that the loan amount aligns with the property’s worth. However, not all lenders handle upfront valuations the same way—some offer free valuations, while others may charge a fee. Here’s what the Residential Lending Group team wants you to know about upfront valuations with different lenders.
Why Are Property Valuations Important?
Lenders use valuations to determine the market value of the property, which influences how much they are willing to lend you and whether the property is suitable as security. Valuations help protect both you and the lender by ensuring the loan amount aligns with the property’s worth.
Common Types of Valuations
- Full (Long Form) Valuation
- What it is: A comprehensive, detailed report conducted by a qualified valuer who inspects the property in person.
- When it’s used: Typically required for higher loan amounts, complex properties, or when the loan-to-value ratio (LVR) is high.
- What it includes: Inspection of the property’s condition, land size, improvements, and comparison with recent sales in the area.
- Why it matters: Provides the most accurate and detailed assessment, giving lenders confidence in the security value.
- Short Form Valuation
- What it is: A less detailed valuation, often conducted through a limited inspection or desktop review.
- When it’s used: For lower-risk applications, refinancing, or when the property is standard and well-understood.
- What it includes: Basic property details and market data without a full inspection.
- Why it matters: Speeds up the process and reduces cost, but may not be suitable for all loan types.
- Desktop Valuation
- What it is: A valuation conducted remotely using property data, sales history, and market trends without a physical inspection.
- When it’s used: Increasingly popular for straightforward properties and low-risk loans.
- What it includes: Analysis of comparable sales, property details, and market conditions.
- Why it matters: Offers a fast and cost-effective option but may be less accurate for unique or complex properties.
- Automated Valuation Model (AVM)
- What it is: A computer-generated estimate of property value using algorithms and large data sets.
- When it’s used: Sometimes used for initial assessments or in combination with other valuation methods.
- What it includes: Statistical modelling based on recent sales, property features, and market trends.
- Why it matters: Provides a quick estimate but should be supported by more detailed valuations for lending decisions.
- Contract of Sale
- What it is: Using the purchase price from the contract as the property’s value.
- When it’s used: In cases where the contract price is recent and considered reflective of market value.
- Why it matters: Simplifies the valuation process but may require further verification if the price seems above market.
How Valuation Type Affects You
The type of valuation required can impact the loan processing time and potentially the costs involved. More comprehensive valuations usually take longer and may incur higher fees, while desktop and AVM valuations offer speed but with some trade-offs in accuracy.
Lenders have specific criteria on which valuation type is acceptable based on factors such as loan size, property type, and location. The Resilend team ensures that the appropriate valuation type is ordered for your application, streamlining the process as much as possible.
Final Thoughts
Understanding the different valuation types can help you better navigate the home loan journey and set expectations around timelines and costs. Remember, valuations are an essential part of ensuring your loan is structured securely and responsibly.
Disclaimer: This information is provided for general educational purposes only. Individual circumstances vary, and lenders have different policies and criteria for valuations. Please consult with a mortgage broker or lending professional to understand how valuations apply to your specific situation. Lender eligibility criteria applies.