How Banks Value Properties


The difference between the price paid by the buyer and the bank valuation is often high – over 20% – and the differential is spreading.

When asked about this situation, I replied that the solution should be a relatively simple one.

Firstly, bank valuers should be paid more – they carry the risk, not the bank – and this, in theory, would allow them time to conduct the appropriate research, and secondly – as we noted – rental return should determine value, not what a previous buyer paid.The difference between the price

If you require finance to complete the purchase of a dwelling, all financiers seek a valuation to ascertain the value of the property that is being offered as security for the loan.

Licensed valuers must base their opinion on hard evidence and take legal responsibility for any information they provide.

Australia’s four major banks have a panel of valuers who are assigned to value a particular property through a process called “Valuation Exchange” (Valex).

Smaller financiers often use the same valuers as the “big four”, although there are many valuers who are not part of the Valex system.

To assess a property’s value, a valuer must inspect the property, record details on the number and type of rooms, along with fixtures, fittings and any improvements.

A property’s unique attributes will also be taken into account, such as:

  • location
  • building structure and its condition
  • standard of presentation and fit-out
  • standard of fixtures, fittings and facilities
  • zoning and whether and planning restrictions apply

The valuer combines these attributes together with recent comparable sales in the surrounding area and prevailing market conditions to produce a valuation report.

Several photographs must also be taken to support their findings.

The identification of appropriate comparable sales is often the most contentious issue, especially in relation to new apartments purchased “off-the-plan”.  

There are a number of reasons for this, as detailed below.

  • Comparable sales should be recent (less than six months’ old).This is problematic when the number of sales is low (perhaps because of a limited supply of dwellings for sale) or because of economic factors.The number of dwelling sales last year in Brisbane, for example, was well below historical averages as a result of the January 2011 flood.This has meant that identifying the required number of comparable sales has become that much harder.The identification of appropriate comparable sales
  • Sufficient analysis of alleged comparative sales must occur so that family transfers and distressed sales are not shown as market transactions.
    For example, one of our developer clients arranged for one of its newly-completed apartments to be valued by several valuers independent of the banks.The first valuation came in at $720,000.  The second at $730,000 and the third at $595,000!Why was the third valuation so low?Because the valuer in question had erroneously based the valuation on a “distressed sale” in a nearby project.Such sales are considered to be inconsistent with the concept of ‘Market Value’ as defined in the Australia and New Zealand Valuation and Property Standards.
  • Banks and their valuers are reluctant to use developer sales (either made “off-the-plan” or after completion) in competing projects as comparable sales.This is based around the mistaken belief that a developer sale does not represent the “true market“.In some locations – especially where there is no sales history for dwelling types such as a new subdivision in a green-field area – or where sales volumes are lower than usual – this leads to valuations that do not truly reflect a property’s worth.

However, the Australia and New Zealand Valuation and Property Standards state that where the property to be valued is within a new development and is being purchased from the developer, sales from other comparable developments should be considered as a cross-reference.

In our view, this means developer sales in other projects can be used as sales evidence to support a valuation.

  • Valuers usually do not use sales made to interstate and overseas buyers as comparative sales, based again on a mistaken belief that non-local buyers are uneducated and pay higher prices than local buyers.
  • In Queensland, clause 27c of the sales contract requires all agents to list how much commission they charge.
    Valuers – on instruction from mortgage insurers and banks – often reduce the purchase price by the amount the agent is paid in excess of the standard Queensland sale fee of 2.5%.
    This is based around the belief that the developer is increasing the purchase price by anything higher than the standard REIQ commission.
    Our understanding is that this clause only applies in Queensland.

Again, as we wrote a few months ago….the distribution of costs should have no bearing on the end value of a product.

Finally, remember that you as a buyer can challenge a valuation if it appears too low.

In particular, keep in mind that comparable sales evidence needs to be “like for like” as far as possible, especially insofar as proximity (to a railway station for example) or height above ground, view, aspect, ceiling height, facilities and so on.

Furthermore, valuers can utilise a much wider range of data than just comparable sales in any valuation report.


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'How Banks Value Properties' have 15 comments

    Avatar for Michael Matusik

    February 20, 2017 susan

    Hi Michael. I wonder what information you have on bank valuations of properties below 40 square metres floorspace. Do valuers take into consideration that future sale of property will be influenced by banks own lending rules around LVR? Or is it purely what it is worth today? And how do your rate the RPData and valuations? Do they just look at recent sales and then add % increase over quarter? Thanks for great articles.


      February 21, 2017 Michael Yardney

      Valuations found on line are very inaccurate – for example they don’t know if renovations or improvements have been carried out.
      Valuers use current market conditions for valuations
      I’d be very, very wary of buying properties under 40 sq mt


        Avatar for Michael Matusik

        February 21, 2017 susan

        Thanks for your response Michael. Wary because of problems reselling with bank restrictions to future buyers I’d guess. Buying into the Sydney market under $500,000 a lot are under 40sqm in good area (Northern Beaches) and receive quite good rent return. Appreciate your advice. And look forward to further property investment insights. I’m learning a lot!


    Avatar for Michael Matusik

    March 10, 2016 Danny

    Hi,Michael. Thanks for sharing your blog. I am just wondering coz I currently am looking at buying a two bedroom apartment, but this unit does come with carspace. I just want to know how that will influence the valution?? Thanks.


      March 11, 2016 Michael Yardney

      Do you mean it has “no” carpark – if so this reduces the value by $30 -$50,000 but more importantly, gives it less appeal – it reduces the number of potential tenants and future buyers – find a better apartment


    Avatar for Michael Matusik

    September 4, 2014 Olu

    Hi Michael
    I am new buy properties. I have a property in a regional town the seller willing to sell. The property is in the CBD which is a good spot for medical services. He has offer to sell at $450,000. He also says someone is willing to lease it from him at a good price. I love the location even though the property is quite old ; it will need lot of renovation to bring it to acceptable level for medical services. My single worry is how do I know the true value of this property? Who should I contact to value the property as I do not want to overpay at the same time not under off him and lose the property.
    Thank you for your advice.



      September 4, 2014 Michael Yardney

      This sounds like a very unique property and therefore one which I would definitely AVOID as an investment.

      It’s in a regional area, in the CBD and aligned to only a special narrow demographic. the fact that your “single” worry is how to value the property concerns me. There are many more things to be worried about this property


    Avatar for Michael Matusik

    June 27, 2014 Julie

    Michael I notice you said you can challenge a valuation. Can you tell me how we go about doing this please. We purchased a property in Western Sydney ($340) over a 15 mths ago with LMI for a 90% loan. We have done a reno and with the rise in values in this area we have had the property revalued to refinance. The valuation has come back at $360 – the valuer used comparable sales from other suburbs but none from this particular suburb. A comparable RPDate report shows comparable sales in our suburb of $410, $450, $463 $408 and $425. We did want to stay with our current financiers as we have paid LMI and if we use another financier we loose the benefit of the LMI that we have paid. I would welcome your advice on how to challenge a valuation.


      June 27, 2014 Michael Yardney


      I’ve found it hard to challenge values directly with the banks, but if you use a mortgage broker you often have more sway and can get a second valuer to value the property
      Were you in attendance when the valuer went to your property? You should be – this is the time to give him your evidence of comparable sales


    Avatar for Michael Matusik

    March 7, 2012 Mary

    Dear Michael
    Great stuff! I have a question. I am selling an apartment I own and the purchaser has sought finance and the valuation has come in 16% below the asking price.
    In my view this is because the property is a one-off heritage redevelopment with few recent comparables.
    However there is a newly developed apartment totally comparable (lesser) which has sold for more in the last 2 months. Would I be allowed to quote your article with regard to the use of new developments as I believe that the valuer has not counted these properties and there are no other similar sales in the last 6 months as Hobart has a low volume of sales and very few comparables for this type of property.


      March 7, 2012 Michael Yardney

      It’s difficult to get comparable values in a low sales environment. I suggest you get your agent to show the purchaser the comparable sales to give him confidence


      Avatar for Michael Matusik

      December 8, 2016 Muriel.

      Hi Micheal
      I’ve recently purchased a sandstone cottage built roughly 1920 s
      It’s not heritage listed tho !
      Was marketed as a two bedroom but when the valuer came in he valued it as a one bedroom cause it only has a sky light ! The window has been closed up because Of a extension…
      Is this correct ? Have u had this happen before ??
      I love the property but I’m annoyed at his low valuations compared to wat I payed ??


        December 8, 2016 Michael Yardney

        Muriel – valuers are being particularly conservative at present, however I’m not sure if you overpaid or not. What criteria did you use to decide how much to pay for the proeprty – did you check recently sold comparable properties?


    Avatar for Michael Matusik

    February 22, 2012 Katie

    Interesting read. Do have a question with regards to what the rules are with regards to valuations if you are buying out the other party (s) share, is there anywhere I find out..


    Avatar for Michael Matusik

    February 22, 2012 fa

    Great blog.


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