The easiest way to understand property valuation

The lender's valuation determines how much you can borrow, not the price you've agreed to pay.

When you apply for a home loan, the bank commissions an independent valuation to assess what the property is actually worth in today's market. That figure directly affects your loan to value ratio, which dictates your deposit requirement, whether you'll pay Lenders Mortgage Insurance, and in some cases, whether the loan gets approved at all. If you're buying in Lara, where property types range from heritage cottages near the town centre to newer estates near Serendip Sanctuary, the valuation process can produce surprising results.

Why Lenders Commission Their Own Valuation

The bank needs to know what the property would sell for if you defaulted and they had to recover their loan amount. Your purchase price reflects what you and the seller agreed on, but it doesn't always reflect market value. The lender's valuer considers recent comparable sales, the property's condition, location factors, and current market conditions. They don't see your emotional attachment or the vendor's reasons for selling. In areas like Lara, where the market includes everything from older weatherboard homes to modern builds near the growth corridor, a valuer will compare your property against similar sales within the last three to six months, adjusting for differences in land size, condition, and features.

What Happens When the Valuation Comes in Low

If the valuation falls short of your purchase price, your loan to value ratio increases and you may need a larger deposit. Consider a buyer purchasing a renovated home near Lara Station. They've offered $580,000 based on the presentation and location, but the valuer assesses it at $560,000 because comparable sales for similar unrenovated properties in the area sit around that mark, and the renovations don't add the full $20,000 premium in the valuer's assessment. The buyer planned for a 10% deposit based on $580,000, which is $58,000. With a $560,000 valuation, the lender will only lend against that lower figure. To borrow $522,000 against a $560,000 valuation still keeps the buyer at around 93% LVR, but to complete the $580,000 purchase, they now need $58,000 plus an additional $20,000 to cover the gap between valuation and purchase price. That's $78,000 total, not $58,000.

In this scenario, the buyer has three options. They can renegotiate the purchase price with the vendor, using the valuation as evidence. They can find the extra funds to cover the gap. Or they can walk away if their contract includes a finance clause that allows them to withdraw if they can't secure the required loan amount. Most buyers don't realise the valuation risk until it happens, which is why getting pre-approval early and understanding the local market helps set realistic expectations.

How Valuers Assess Properties in Growth Areas

Lara sits in a growth corridor between Geelong and Melbourne, which creates valuation complexity. A valuer will weigh recent sales data against the suburb's development trajectory and infrastructure changes. Properties near the Princes Highway or within walking distance of Lara's central amenities may be valued differently to homes on larger blocks towards the rural fringe. The valuer also considers the property type. A three-bedroom brick veneer home on a standard block will have more comparable sales than a five-acre lifestyle block with a home and shedding, which may require the valuer to look at sales across neighbouring areas like Little River or Anakie to find similar properties. If your property is unusual or there haven't been many sales in your immediate area recently, the valuation becomes more subjective and the risk of a lower-than-expected figure increases.

Desktop Valuations and When They're Used

Some lenders use desktop valuations for lower-risk loans, where the valuer reviews sales data and property records without inspecting the property in person. This is common for refinancing or when the loan to value ratio is low. A desktop valuation is faster and cheaper, but it carries more risk of inaccuracy because the valuer can't assess the property's condition, improvements, or issues firsthand. If you've renovated your Lara home or there's something unique about the layout or land, a desktop valuation might undervalue it. You can request a full inspection-based valuation through your broker if you believe a desktop approach won't reflect the property's true worth, though this may add time and cost to your application.

Challenging a Valuation That Feels Wrong

You can contest a valuation, but you'll need evidence. If the valuer has used incorrect comparables, missed recent sales, or made an error in the property details, your mortgage broker can submit a request for review along with supporting documentation. This might include a list of more appropriate comparable sales, evidence of recent renovations, or corrections to land size or zoning details. Lenders will sometimes order a second valuation from a different valuer, though this isn't guaranteed. The process can delay settlement, so it's worth acting quickly if you spot an issue. In our experience, valuations that come in low are more often accurate reflections of market sentiment than errors, but there are cases where a valuer has missed key details or relied on outdated data.

How Valuation Affects Your Interest Rate and LMI

Your loan to value ratio determines which loan products you can access and what rate discount you'll receive. Lenders offer their lowest rates to borrowers with an LVR below 80%, because the loan is lower risk. If a low valuation pushes your LVR above 80%, you'll pay Lenders Mortgage Insurance and may not qualify for the same rate discount. On a loan amount of $500,000, the difference between a rate discount available at 75% LVR and the higher rate you'd pay at 85% LVR can mean thousands of dollars in additional interest over the life of the loan. The valuation outcome also affects your ability to access offset accounts or other home loan features that some lenders reserve for lower-LVR borrowers.

Using Valuation Knowledge Before You Make an Offer

Understanding how lenders value property helps you make a more informed offer. Before committing to a purchase price, research recent sales for comparable properties in Lara through Domain or REA. Look at properties with similar land size, age, and condition, not just the same number of bedrooms. If you're stretching your budget to secure a property, factor in the possibility that the valuation might not support the full purchase price. Leaving room in your deposit for a potential shortfall reduces the risk of being caught without enough funds at settlement. If you're working with a mortgage broker, they can often provide insight into how lenders have been valuing properties in the area recently, which gives you a clearer picture before you sign a contract.

Property valuation isn't something you can control, but understanding how it works and planning for different outcomes keeps your loan application on solid ground. Call one of our team or book an appointment at a time that works for you.

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