Property valuation vs appraisal

July 04, 2017
Kathryn Coleman

Are you in the process of selling your home? Are you currently looking to buy property?

Whatever your situation, it really is good to have information at hand when you start negotiating to enter into a property contract.  Agents and specialists involved in the process will talk of ‘property valuations’ and ‘appraisals’. And if this is your first time to buy property, you may be wondering what these terms mean.

It’s important to note that property valuations are different from property appraisals.

In this article, we will explain what these two terms mean and how they will affect you in your home buying journey.

Property Valuations:

A property valuation in its truest form is the price a valuer appointed by a lender says the property is worth.

After you have entered into a contract to buy a property , and before settlement, your chosen lender will arrange for a formal property valuation to be completed.

A lender will either complete this process automatically (via a desktop valuation) or send out a qualified valuer to complete a detailed valaution of the property.  The lender will decide what type of valuation is required to support the application for finance

An automated valuation is a great way to quickly gauge a property’s estimated market price.  Lenders will generally employ a qualified valuer to visit your property where there is insufficient data to formulate a desktop valuation or you are borrowing more than 80% loan to valuation ratio.  The valuer will review:

  • The size the property;
  • The number and type of rooms;
  • The location;
  • Any recent sales that have happened in the area; 
  • The fitout of the property and whether or not it needs improvements; 
  • The quality of the building.

By taking these elements into consideration, the valuer will then present a qualified assessment of the property price.

The lender will then use this valuation to help determine how much it is willing to lend to you. If the valuation from the qualified valuer comes back different to the contract price there will be other options to consider such as engaging another lender (and hence another valuer) to see if you get a higher valuation, or using more of your own savings and a lower loan amount.

Property Appraisals:

A property appraisal differs slightly from a property valuation. In the first instance, a property appraisal is typically completed by a real estate agent who looks at how much the property you are trying to sell would be likely to achieve in the current market.

Property appraisals take into consideration market trends and other recent sales that have occurred in the same or neighbouring areas.  This appraisal is offered as part of the service in securing the business to sell your home.

When looking at the fundamental differences between an appraisal and valuation you should remember the reason these reports are generated and who uses the data.

A property valuation is requested by your lender to confirm the property will offer adequate equity to secure the home loan.  It is likely to be conservative in order to protect the lenders position

A market appraisal is an estate agent's recommendation on how you can achieve the best price for your property in fair market conditons.

If you want to ensure you have adequate cash and equity to achieve your property ownership goals do your research and speak George Cremona Mortgage Choice in Wynnum.

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Tags: Buying Property,Home LoanMortgage ChoiceProperty Market

Posted in: Property market

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