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How to Challenge a Bank Valuation?

Everything you need to know about bank valuations and how to challenge them

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So you’ve just signed your contract and got the nod from the bank for pre-approved funds to complete your purchase. Everything is looking great. Until suddenly it isn’t…

The valuer from the bank has taken a look at your property, and in their eyes, your $1.2M palace is just a measly $930K shack.

Ok, that may be a bit dramatic, but the issue of low valuations is very real and affects around 35% of home buyers today.

This article will show you exactly how to handle low valuations in the most comprehensive way possible. We’ll start off by covering some of the basic principles of property valuation, and then show you what you can do to resolve any issues with a low valuation.

Here’s what we cover in this post:

Table of Contents

What is a valuation?

A property valuation is an assessment of the value of a property. Valuations typically consider several factors, including the condition of the property, comparable sales in the local area, and the state of the property market.

Typically, a valuer will look at:

  • Size of the property
  • Number and type of rooms
  • Fixtures and fittings
  • Areas for improvement
  • Location
  • Building structure and condition (including faults)
  • Standard of presentation and fit-out
  • Ease of access, such as good vehicle access and a garage
  • Planning and restrictions and local council zoning
  • Recent sales in the area and other market conditions

Why do I need a property valuation?

1. Applying for a home loan

There are 3 main reasons that you would need a property valuation:

How much is your home worth in 2023

When you want to buy a new property or refinance your home loan, the banks will want to do a valuation. They do this to ensure that they aren’t lending you more money than the property is worth.

The property acts as a security against the money that the bank lends you. If you are no longer able to make your repayments and they need to repossess your home, they may need to sell your home quickly to recover their money. If they lend you too much money compared to the property’s value (known as the Loan to Value Ratio), they will not be able to cover their losses.

2. Buying or selling property

If you’re buying or selling a property, a valuation can help you get an idea of what the property may be worth. If you’re buying, it will help you position your offer so you’re not over- or under-bidding on the property. If you’re selling, it will help you price your property competitively compared to other similar properties for sale in your area.

3. Understanding the equity you have in your home.

Equity is simply your personal interest in a property. It increases over time as you pay down your home loan or when your property value increases. It is important to know how much equity you have as it forms part of your net worth. A property valuation can help you know how much equity you have. You can also withdraw part or all of your equity in the future to do renovations or buy an investment property.

Methods to determine property value

So what are the things that you need to do when trying to determine how much your property is worth? Here are some methods that you can use to get a property value in today’s market.

1. Using the 'Sold' section for property valuation

The first and best way of doing it is just looking at the sold section on real estate websites like realestate.com.au and domain.com.au. It’s as simple as going on the website, clicking your suburb and updating the filters to match your property. If you’ve got a 2 bedroom apartment, click 2 bedrooms, 2 car space: you can even put the internal square meterage Etc. You can then go through the properties to see how much similar properties to yours have sold.

How much is your house worth in 2024

Remember to compare with the most recent sales. If you compare it to sales from 3 or 4 years ago, it won’t be right. But if you are looking at sales from a few months ago, you can be pretty confident with your estimate.

So, looking at sold price is a quick and easy way to value your property, and you don’t even need anyone to help you.

2. Automated valuations and their pitfalls

The second way is to look at automated valuations, which are basically computer-generated valuations. You can use a couple of online tools like On The House. We also have access to RP Data and CoreLogic, so if you need help with that, contact us, and we can help you.

Now the big Pitfall with these is that they are automated. They’re called Automated Valuation Models (AVMs) and are not always accurate. In fact, we suggest using it as a guide at best, as they will give you a large deviation. For example, it may say your apartment is worth between $500,000 and $800,000, which is a pretty big gap. 

AVMs also don’t factor in the property’s condition, how old it is, if it’s a brand new building or an old one, the area it’s in and if it’s close to a train line or main road. All this is stuff that really does make a difference with the sale value.

So the key in using RP data is to take them with a grain of salt because, a lot of times, they are not the most accurate.

3. Asking a real estate agent

Real estate agents can be overly optimistic about the value of your property but they can also provide key market insights.

The 3rd method is asking a real estate agent. Real estate agents can be pretty overly optimistic, so if you go out and ask a real estate agent to appraise your house, very rarely are they going to tell you it’s worth less because you’re probably not going to want to sell with that agent if they’re going to get you fifty thousand dollars less than the bank valuation…

However, the positive thing with getting a real estate agent to appraise your property is that they can factor in the current market conditions, which the bank valuation and even the online sales won’t do. If the agent is saying well, we’ve found that the property market is going up 2 to 3 per cent a month, they might factor that in and say the previous sales are saying $550,000, but we think we can get you $570,000 to $600,00. That could be a fair estimate but don’t go in there with your rosy-coloured lenses— you need to realize agents can be really optimistic.

4. Bank Valuations

A bank valuation is performed by an independent valuer on behalf of the bank. They use the figure provided by the valuer to calculate the Loan to Value Ratio (LVR). LVR is an important aspect of the banks’ assessment of your home loan. The higher the LVR, the higher the risk. If your LVR is over 80%, they will typically require you to purchase Lenders Mortgage Insurance (LMI) to protect them if you default on your loan repayments. However, there are some cases where they will waive the LMI requirement up to 90% of the property value.

Bank valuations are typically more on the conservative side of things and look at the home’s value over a longer-term because they are looking to protect their money.

Now the caveat here is different banks have different ways of valuing properties. You may have seen online some of the bigger banks, like CBA and NAB, have their own automated valuation models, which can be massively optimistic. They can be hundreds of thousands of dollars or more than what the property is potentially worth in the current market because it’s using such a big data set.

In other cases, they can be completely wrong. We’ve had some situations where people have built a nice 4-bedroom brand-new home, and because the bank’s model thinks it’s still a block of land, the valuation is completely wrong.

The different types of bank valuations

There are several different types of bank valuations. The bank or lender will typically choose a more comprehensive valuation method if there is a higher perceived risk to the bank. Here are the different types of bank valuations:

Full valuation

Full valuations are the most comprehensive method. During a full valuation, the valuer will inspect the property inside and out and write up a bank report. They will include photos, property details, and the reasoning behind their assessment.

Kerbside valuation

A kerbside valuation involves a physical inspection of the property, but only from the outside. They will take into account recent sales and the external condition of the property, but not any special internal features such as recent renovations.

Desktop valuation

Desktop valuations are still performed by humans, but they don’t involve any physical inspection of the property. The valuer will look at the known property details and comparable sales data to assess the property value.

Automated valuation (AVM)

An automated valuation is the least comprehensive method. Like a desktop valuation, an AVM uses the known property details and comparable sales. However, it uses a statistical computer valuation rather than a professional valuer to estimate the value.

How long does it take to value a property?

The typical turnaround time for a property valuation is three to four working days. Delays can occur if there are issues with the sellers’ agent giving the valuer access to the property or during busy times when valuers can be booked out several days in advance.

When should I get a bank valuation?

The best time to get a bank valuation is after you have agreed on a final purchase price (either by private treaty sale or auction) but before submitting your application to the bank.

Why should I do a valuation before applying for a loan?

There are a number of reasons why it is important to do a valuation before applying for a loan.

Doing your valuation before applying for your loan has several advantages:

  • It protects your credit score: Every loan application leaves an enquiry on your credit file. If you have too many enquiries in a short period of time, it can affect your credit score and make it harder for you to get your loan approved.
  • It will improve your chances of your loan being approved: if the bank’s valuer gives you a low valuation, it could mean that your loan would be rejected. If we do an upfront valuation, we try your application with a different bank or lender.
  • Your loan application will be approved faster: An upfront valuation can speed up the approval process since we won’t need to wait for the bank to arrange a valuation.

Why should I wait until I have a final purchase price?

The purchase price of your home gives the valuer an anchoring point. They can compare your purchase price against their assessment of the home’s value, and more often than not, they will value the home at the same price as you paid for it.

If you order the valuation before you have agreed on a final purchase price, the valuer may be more conservative in their estimation. This could cause you issues if your purchase price is higher than the valuer’s estimate.

What can I do to estimate the value before agreeing on a final purchase price?

There are a few options for estimating the value of a property that don’t involve using a bank valuer. We covered them above. You can also use a buyers’ agent to assist you with purchasing the property. Alternatively, you can use comparable sales and some other tools to value the property’s market value yourself.

Can I provide my own valuation to the bank?

how to challenge a bank valuation
Can I provide me own valuation to the bank? The short answer is no.

The short answer is no. Most banks require that the valuation is ordered through them to prevent fraud or other issues. They will typically use an independent valuer (someone not employed directly by the bank) to provide an unbiased estimate of how much the property is worth.

How to avoid a low bank valuation when buying a home

The best way to deal with a low bank valuation is to avoid getting one to begin with. This may be a bit late if you’ve already received a low valuation, but if you’re not at that stage yet, then here’s what you can do to avoid it.

Do your own value estimation before agreeing on a purchase price.

Researching the market value of your property is a critical part of the home buying process. If you don’t know what the property is worth, you’re basically pulling a number out of thin air. And that’s a recipe for disaster – if you’ve paid well above the fair market value for your home, there’s not much you can do to challenge the valuation.

We can assist you by providing an RP Data report which gives an automated estimate of the value of your property. Combined with your research looking at recent sales on Domain and realestate.com.au, this should give you a fairly accurate picture of what the property is worth.

Be careful when buying an off-the-plan apartment.

How much is your home worth?

If you’re buying an off-the-plan apartment, it’s a good idea to remember that the lender can only value the finished property. Completion may be well over a year after signing the contract and placing a deposit.

There is a risk that property values in the area may change over the construction period. The bank valuation may be lower than your purchase price if they do.

There is also a risk that the dimensions of the finished apartment may vary from the plans. This situation may result in a bank valuation that’s less than the purchase price.

Unregistered land can also be risky.

A similar situation may occur in new estates when developers offer unregistered land for sale. The developer may need several years to build the infrastructure necessary to register the land.

In this case, the lender will need to reassess your application before settlement. Over the time since you paid your deposit, values in the area may have changed, resulting in a valuation lower than your purchase price.


What to do if the house valuation is less than your offer

If you have received a bank valuation that is less than the offer you have submitted (or bid at auction), the first thing to do is: don’t panic.

This is known as a valuation shortfall, and it’s not uncommon. There is no hard and fast rule on bank valuations. A valuation is the opinion of a single individual at a certain point in time. It’s quite common to have three different people value the same property at the same time, in the same market, and have three different valuations.

You could receive a valuation shortfall if:

  • The valuer is relying on outdated comparable sales data.
  • The market is rising quickly, and the valuer has failed to factor this in
  • The lender used a less comprehensive valuation method, which doesn’t consider the property’s full value.

You have several options to resolve this issue. If you’re applying directly with a bank, you can attempt to do this yourself. Still, we recommend using the services of a mortgage broker to assist.

Here at Hunter Galloway, we have assisted hundreds of people with valuation issues. We can usually get a good outcome thanks to our relationships with different lenders.

Generally speaking, here are your options to resolve a valuation shortfall (and this is how we do it here at Hunter Galloway):

1. Find out the reason for the low valuation

The most common reason for a low valuation is that the valuer did not find enough supporting evidence for comparable sales of similar properties. The less supporting evidence they have, the more conservative they tend to be with their estimates.

2. Challenge the valuation

challenging a bank valuation is not easy
If you are not happy with your valuation, you can challenge it. However, your chances of success are usually very slim.

Valuers can make mistakes, and sometimes you can challenge the property valuer directly. This approach is often unsuccessful because, as with everyone, valuers do not like to be told that they are wrong. It’s estimated that only 3% of clients are able to challenge a valuation successfully.

If you choose to contest the valuation, you’ll need to give at least three recent sales in the local area of homes with comparable quality to the valued property. These sales should generally be within the past six months to ensure their validity, but the more recent, the better.

3. Get valuations from other banks

Different banks will use different valuers for their valuation process. So if you can’t get your original bank or lender to increase their valuation, you can request a valuation from another bank. We can order up to another two valuations from other lenders to see if their valuation is more in line with your purchase price.

4. Negotiate with the seller

Negotiate with the seller if you get a bad valuation

If you have submitted an offer under private treaty with a finance clause, you may be able to negotiate with the seller for a lower price.

For example, recently, one of our clients bought a one-bedroom unit in Brisbane, and they paid $350,000, which seemed like a good deal for one bedroom. We went and got three separate valuations— one came in at $315,000, one came in at $320,000, and the third one came in at $320,000. So that’s over $30,000 less than it was under contract.

Fortunately, the property was still subject to finance, so the buyer could go back to the selling agent and ask them to reduce the purchase price to $320,000.

This option is highly dependent on the market conditions. If the seller has other offers on the table at a price higher than the bank valuation, then they will not accept a price reduction.

If that happens, you can either walk away (if you have a finance clause) or accept that you will need to put in a higher deposit or borrow more money to complete the property purchase.

If you’ve bought at auction, you’ll need to find the money to complete the shortfall or risk losing your deposit.

What happens if you can’t resolve the valuation shortfall?

So what do you do if you can’t find a lender who is willing to value your property at its purchase price?

You have a few options, depending on the LVR of the loan based on the bank’s valuation of the property.

If the new LVR is still below 80%, you can proceed with the loan.

If you have a sizeable deposit for the property (more than 20%) and the new, lower value doesn’t take you over that 80% level, then there aren’t any issues with getting your loan approved.

Let’s look at an example:

 Offer/ValueDepositLoan AmountLVR
Your Offer$500,000$150,000$350,00070%
Bank Value$450,000$150,000$350,00078%

In this scenario, you have put in an offer for $500,000. You have a deposit of $150,000 and you would like a loan of $350,000, giving you an LVR of 70%. The bank valuation comes in at $450,000, giving you a new LVR of 78%. As this doesn’t take your loan above 80%, you will have no issues with getting your loan approved.

If you have a 20% deposit for the property and the new, lower value takes your LVR over 80%, then you may need to pay Lenders’ Mortgage Insurance if you can’t source extra funds to make up the shortfall. You should still be able to proceed with the loan application, but you will be up for additional costs to get the loan approved.

Let’s look at another example:

 Offer/ValueDepositLoan AmountLVR
Your Offer$500,000$100,000$400,00080%
Bank Value$450,000$100,000$400,00089%

In this scenario, you have put in an offer for $500,000. You have a deposit of $100,000 and you would like a loan of $400,000, giving you an LVR of 80%. The bank valuation comes in at $450,000, giving you a new LVR of 89%. If you are unable to make up the additional shortfall, then you would need to pay LMI to proceed with your loan application.

If the new LVR is over 95% – you will need to find a way to cover the shortfall with extra cash

challenge a bank valuation

If the valuation shortfall takes your LVR over 95%, then you will need to find additional funds to cover the valuation shortfall. 95% is the maximum LVR that banks will accept (and not all of them go that high), so if you can’t make up the shortfall then your loan will be declined.

Here’s an example:

 Offer/ValueDepositLoan AmountLVR
Your Offer$500,000$50,000$450,00090%
Bank Value$450,000$50,000$450,000100%

In this scenario, you have put in an offer for $500,000. You have a deposit of $50,000 and you would like a loan of $450,000, giving you an LVR of 90%. The bank valuation comes in at $450,000, giving you a new LVR of 100%. If you are unable to make up the additional shortfall, then your loan would be declined as there are no lenders who will loan you 100% of the property value. The only exception is if you’re getting a guarantor loan.

Options for making up the valuation shortfall

If you need to put a higher deposit to purchase the property, then you have a couple of options to do so:

Prove that you have additional funds

Let’s start with the most obvious option first. If you have access to additional funds, such as shares that you’re willing to sell, then you can go to your lender and prove that you have additional funds to cover the shortfall amount.

You may also be able to ask your parents or other relatives to gift you the money – the bank of mum and dad has been a great assistant to many of our clients over the years.

Use equity from another property

If you own an investment property, you may be able to refinance the loan on that property (or redraw funds from the mortgage to cover your shortfall.

If your parents or other family members own property, you could ask them to become a guarantor on the loan, which would allow you to borrow up to 105% of the property value.

Case Study: How we were able to get a $110,000 increase in a client’s property valuation.

In January this year, Thomas and Kate reached out to us for some assistance with their home loan. They had just put in an offer for a lovely 3-bedroom home in a suburb in North Brisbane for $900,000.

The bank valuation came in significantly lower than their purchase price, at $790,000. With a deposit of $140,000, this would have taken their LVR to 96%. They didn’t have any additional funds, so without a better valuation they would have had to walk away from the contract.

We sourced valuation from two other lenders, providing additional supporting evidence of recent comparable sales. As you can see below, getting another valuer to take a look at the property resulted in a $110,000 increase in the value of the property.

January 2022Bank Valuer 1$790,000
January 2022Bank Valuer 2$800,000$10,000
January 2022Bank Valuer 3$900,000$110,000

This was the same property, at the same time, but different valuers.

This is not unusual, although this was a higher increase than we see in most cases. And it just goes to show the value of sourcing alternative valuations if the original property valuer isn’t coming to the table.

If you’re in a similar predicament, we may be able to help. Get in contact with our brokers today to see if we can assist with arranging another valuation for you, or call us on 1300 088 065 to discuss your options.

Case Study: How we managed to get $20,000 off the purchase price after a bad valuation

Negotiate house price after bad bank valuation
After a bad bank valuation, you can re-negotiate the purchase price of the property.

A few weeks ago, Sarah and Tom reached out to us at Hunter Galloway. They wanted to buy that classic first home — a backyard for the kids, a place to finally establish themselves and they were looking to buy in Hobart. They’d first looked at buying a place in 2022. Now, back in 2022, the market in Hobart was red hot. Houses were selling in under 20 days, and prices were ramping up.  Every open home they went to was absolutely packed, and whenever they put an offer on a place, they were completely outbid by investors. After a few too many defeats, they’d given up buying a home. 

But now, times have changed, and Hobart’s property prices peaked back in May 2022.  Today, it’s a whole different beast. Properties are now selling in 53 days on average compared to 28 just a year ago. The prices have pretty much flatlined, and the average home value is worth 0.1% less than it was this time last year. So they went back out and started looking for a house, and after months of searching, they found the perfect place that ticked most of their boxes. They went all in with a strong offer. We had their preapproval sorted, and amazingly, the seller accepted. Tom and Sarah were stoked. This was it!  But there was a problem… 

When we went for formal approval, the bank’s valuer didn’t agree with the price they were paying. They valued it at $20,000 less than the contract price. Sarah and Tom didn’t have the extra deposit, and the dream of their home all these years in the making was falling apart. Just like that, they would have to make up another $20,000. Imagine the gut punch of everything they’d worked for slipping through their fingers.

Here’s the thing to remember: Every seller has their own reasons for selling. Maybe they’re downsizing or moving cities, and sometimes there’s urgency involved. For Sarah and Tom, we needed to figure out what the seller could possibly need more than just the highest price. 

Time was the key here. Sarah and Tom were already pre-approved, so they knew their finances were solid. That was the key to their becoming the easiest, most hassle-free buyer,  so they went back to the seller with a carefully crafted counteroffer.

Their final price was $20,000 below their initial offer, showing they are still serious even with that hiccup. Instead of the initial 6-week settlement they’d offered, we reduced it to 4 weeks.

Sarah and Tom explained the situation pretty honestly. They love the house, but the bank’s valuation has made this extra deposit a genuine hurdle. By offering convenience and a speed of settlement at a slightly lower price, they were really addressing the seller’s potential anxiety. Also, from the seller’s perspective, if they had to cancel the contract, it could take another 2 to 3 weeks to find another buyer and get their Finance approved. So they were happy with Sarah and Tom’s new offer.

How can you make this work in your situation?  Well, if you’re in a declining market like Hobart or one that’s at a peak like Canberra, you can have more leverage and offer the seller a lower purchase price, which is in line with the lower bank valuation. Why? There are 3 reasons:

  • Firstly, in a declining market, buyers have more choices, and sellers are competing to grab the attention of fewer buyers. 
  • Secondly, there are also time pressures because sellers worry that their property might sit around for months, getting stale, and the longer it lingers, the more undesirable it will look.
  • Thirdly, there is uncertainty when prices are falling or flat. Sellers get anxious that the property will be worth less in the next 6 weeks or a month.

So, getting a lower bank valuation is not the end of the world, depending on which stage of the property cycle you are in.

Bonus: Common mistakes in property valuation

Real estate can be subjective, and people make common mistakes when valuing their homes. Here are some common mistakes we have seen. 

Being influenced by an agent. An agent may contact you and say hey, I think your house is worth $2 million. But real estate agents can sometimes be too optimistic because they want you to list your house with them – and get a sale. Truly speaking, the real value of our home will be somewhere between what the agent thinks and the bank valuation. So don’t overly rely on the agent’s appraisal of your home.

Looking at the wrong comparison. Usually, the mistake comes when you are not comparing apples with apples. You need to look at similar houses in the same suburb with the same bedrooms and improvements etc. You should also compare similar land sizes. For example, if your house is sitting on 200 square meters and you compare it with a house on 600 square meters, you will get skewed results.

How much is your home worth?
Sometimes, having an emotional attachment to your home can skew your valuation.

Making emotional decisions. This is especially true for those with an emotional attachment to their house. Maybe you ‘built it brick by brick’ or raised your family there. But this emotional attachment to the house can make you completely off in your property valuation.

Listening to the media. Sometimes you may think your property is worth more or less than it is because of listening to the media. This happened with covid. A lot of the media were saying property prices were going to tank, and people were so worried about what their properties were worth. Contrary to the media, property prices rose to record highs during Covid! So when considering what your property is worth, don’t let too many external factors, such as the media, influence what you think it is worth.

Next steps and getting your home loan approved.

Our team at Hunter Galloway is here to help you buy a home in Australia.  Unlike other mortgage brokers who are just one person operations, we have an entire team of experts dedicated to help make your home loan journey as simple as possible.

If you want to get started, please give us a call on 1300 088 065 or  book a free assessment online to see how we can help.

Our team of home loan experts is here to help you buy a home in Australia.

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