What is a property valuation, and how much does it cost?

Whether you’re looking to buy a home, sell a home, or refinance your home loan, getting a property valuation is a step you shouldn’t skip.

A property valuation is a professional report that tells you the market value of your place. It considers a range of factors to give you an accurate and current purchase price. Your property's value can inform everything from buyer negotiations, asking prices, to your mortgage size, so it's vital to understand how much your property is worth. 

Here's what you need to know.

In simple terms, property valuation is a detailed and legally binding report of a property’s market value conducted by an accredited valuer. Home loan lenders use this report to understand if the property is suitable enough to be used as security against the loan.

Buyers also get a property valuation done to make sure the loan amount they are paying is fair against the overall market price. 

Keep in mind property valuations tend to be conservative: they establish the minimum price a property should be sold for. If you buy at auction, for example, you may end up paying more than the property valuation says.

When it comes to a property’s final price, competition, market conditions and buyer emotions play a role.

You typically need an official property valuation when you apply for a home loan, whether it's your first home loan or if you're a refinancer needing to establish your home equity. Many mortgage lenders require this step before they approve your home loan application. 

You may also need a property valuation when dealing with a property settlement between a family member or a spouse. For example, if you’re getting a divorce, you’ll want to know how much your shared home is worth to calculate capital gains tax and ensure the correct settlement amount is reached. 

For more information, see our guide on what happens to your mortgage if you break up.

You can get a property valuation through an independent valuer. The cost depends entirely on the property value, and it might be anywhere between $200 to $600. Property valuation fees are therefore a key item to budget for when mapping out your home loan costs. 

Many lenders charge property valuation fees at cost, depending on their internal valuation cost or an external valuation fee. However, many lenders also offer free property valuations or fee waivers as part of their home loan packages.

According to the Mozo database, property valuation discounts come in a few varieties.

• Lenders that will cover the cost up to a certain amount (usually between $300 to $500).
• Lenders that will waive the fee for home loans over a certain amount.
• Lenders that will completely waive the property valuation fee (for loans with or without a package).

Keep in mind if you've applied for home loan pre-approval but are still shopping the property market, you may need to pay for additional property valuations, even if the lender covers your first.

A lender will list their fees and charges in the product disclosure statement and target market determination. When comparing home loans, double check how property valuation fees are covered. 

HOT TIP: Property valuation is not the same thing as a free property report. Free property reports tend to be far less conservative in price and just analyse the surrounding suburb and exterior property conditions. 

When an accredited valuer examines a property, here are the key pricing factors they consider:

• The size of the property and land
• The number and size of rooms
• The fixtures and fittings
• The condition of the property’s building and structures
• The property’s architectural style
• The ease of access 
• Potential planning restrictions and local council zoning
• Location and level of amenity.

Once the valuer has all this information, they’ll compare it to other properties and land in the surrounding area so they can create a report of the property’s value. 

Your valuer might also consider economic factors, such as average mortgage sizes in the area and home loan interest rates. 

A property valuation is not the same thing as a market appraisal, also called a property appraisal. 

Real estate agents typically conduct property appraisals to figure out the estimated value of your property in the current market. Unlike property valuations, a market appraisal is not a legally binding report. Because of this, your home loan lender is unlikely to accept it as part of your mortgage application alone. 

An agent's property appraisal might also show a higher suggested price than what's written in a property valuation report. This is because agents will consider emotion and buyer incentive, not just the raw condition and suburb trends.

Remember, a property valuation doesn't just come in handy when you're applying for your first home loan. If your mortgage repayments have gone up due to high interest rates and you're keen to refinance, a property valuation can help you establish your loan-to-value ratio (LVR) and home equity.

Essentially, by knowing the market value of a property, you can establish how much of your property you own. The value of your home ownership is your equity; the ratio between your loan size to home value is your LVR.

Generally speaking, borrowers with higher equities and lower LVRs get offered lower interest rates. Since they have more security built up in their property, lenders see them as less risky and reward them.

On the other hand, borrowers with low equities and high LVRs typically pay higher interest rates, and the added cost of Lenders Mortgage Insurance (LMI). 

You may be able to refinance with the same lender or negotiate a lower interest rate just by demonstrating that your equity has increased. Your equity increases as you pay off your mortgage, or as the value of your property rises due to capital growth.

You will need to know your equity to refinance anyway, so it could be worth checking if you want to get home loan savings.

If you’re looking to get into the property market, check out our home loan guides and tips. Alternatively, if you’re ready to buy, start comparing home loans below.