Key Takeaways
- A bank valuation is a formal property assessment conducted by a certified valuer to determine the property's market value for lending purposes.
- A bank valuation provides an objective, conservative estimate for lenders, whereas a market appraisal offers a broader, potentially more optimistic value for buyers and sellers.
- Residential property valuation can cost anywhere from $300 to $600, while commercial property valuation can cost $500 to more than $2,000. Many residential lenders absorb this cost.
- A property valuation report includes details about the property, any improvements, market analysis, zoning and legal information, rental assessment, valuation methodology and figure, and a possible risk rating.
- Types of property valuation reports include a full valuation report, a kerbside valuation, a desktop valuation, an automated valuation model, and a short-form valuation.
- It is possible to get a free bank valuation usually as a part of a loan application or through a lender's promotional offer.
- We at Dark Horse Financial offer free bank valuations outside of the loan process to ensure that you can make the most informed decision.
When buying, selling, or refinancing a property, you may have encountered the need for a property valuation. In Australia, bank valuations are a standard part of real estate transactions, whether for residential or commercial properties. What is a bank valuation, why is it needed, and how much does it cost? This guide will help you learn all there is to know about it.
What Is a Bank Valuation?
A bank valuation is a formal assessment of a property’s market value conducted by a professional valuer on behalf of a bank or financial institution. It determines how much the bank believes the property is worth, which directly impacts the amount of financing they are willing to offer. Bank valuations are necessary when you’re seeking funding for a property loan or a refinance.
While buyers and sellers often use market appraisals from real estate agents, a bank valuation is generally more conservative—you may find that the bank valuation is lower than the market appraisal. This is because an appraisal is an optimistic estimate that accounts for the highest price a buyer will pay and a seller is prepared to accept. Meanwhile, bank valuations are more rigorous and consider the physical aspects of the property.
Why Are Bank Valuations Necessary?
Valuations are necessary to provide an accurate and objective assessment of a property’s value. This ensures that all parties can make informed decisions. For lenders, valuations can mitigate risk by determining the value of a property, which influences loan amounts and terms. Buyers rely on valuations to determine fair prices and to be able to negotiate better deals, especially when refinancing. Additionally, valuations are critical for legal purposes, including estate settlements, divorce proceedings, or tax calculations. By offering a reliable benchmark, valuations promote transparency and confidence in real estate transactions.
How Much Does a Bank Valuation Cost in Australia?
The cost of property valuation varies depending on the type of property, the purpose of the valuation, the location, and other factors. Below is a general breakdown:
- Residential Property Valuation Costs: For residential properties, such as houses or apartments, the house valuation cost typically ranges between $300 and $600.
- Commercial Property Valuation Costs: The commercial property valuation cost is generally higher, ranging from $500 to more than $2000.
Understanding Valuation Reports
A property valuation report provides a detailed assessment of a property’s value based on market conditions and specific property characteristics. Below is an outline of the key components typically found in a property valuation report.
Property Details
The report begins with a comprehensive description of the property, including:
- Address: Exact location of the property.
- Type of Property: Residential, commercial, industrial, or mixed-use.
- Size: Land size and building size
- Age and Condition: The property’s age and overall condition (e.g., new, well-maintained, or in need of repair).
- Structural Features: Details of the construction materials, roof type, and foundation.
Property Improvements
This section outlines any significant improvements or unique features of the property, such as:
- Renovations or extensions.
- Additions like a pool, garage, or outdoor entertainment areas.
- Energy-efficient upgrades (e.g., solar panels, insulation).
- Interior features like modern kitchens, bathrooms, or high-end fittings.
Market Analysis
This section evaluates the property in the context of the current real estate market:
- Comparable Sales: Recent sales of similar properties in the area are used to benchmark the value.
- Market Trends: Analysis of market conditions, such as rising or falling property values, demand, and supply.
- Location Analysis: The impact of the property’s location, including proximity to schools, transport, shops, and other amenities.
Zoning and Legal Information
This section includes important legal and regulatory details, such as:
- Zoning Classification: Determines what the property can be used for (e.g., residential, commercial, or mixed-use).
- Encumbrances: Details of any easements, covenants, or restrictions affecting the property.
- Planning Regulations: Compliance with local council and planning requirements.
Rental Assessment (if applicable)
For investment properties, the report may include:
- Current Rental Income: If the property is already tenanted.
- Rental Market Analysis: Estimated rental value based on similar properties in the area.
- Vacancy Rates: An indication of how long it might take to find tenants.
Valuation Methodology
The report outlines the approach used to determine the property’s value. Common methodologies include:
- Comparable Sales Method: Compares the property to recently sold, similar properties.
- Income Capitalization Method: Used for investment properties, it evaluates value based on rental income and expected yield.
- Cost Approach: Assesses the cost to rebuild the property from scratch, considering depreciation.
Valuation Figure
The final valuation figure is the most critical part of the report. It includes:
- Market Value: The property’s estimated value if sold under current market conditions.
- Forced Sale Value: A lower estimate reflecting a quick sale scenario (e.g., foreclosure).
- Insurance Value: The replacement cost for rebuilding the property, excluding land value.
Risk Rating
Valuers may include a risk assessment that highlights potential issues affecting the property’s value, such as:
- Market volatility.
- Structural defects.
- Legal disputes or zoning changes.
Types of Property Valuation Reports
These are the common types of property valuation reports:
1. Full Valuation Report
A full valuation is the most comprehensive type of property valuation. It involves an in-depth assessment of the property’s features, condition, and location, along with a detailed market analysis. This type of report is commonly required by lenders for financing purposes or legal disputes.
2. Kerbside Valuation
A kerbside valuation is a less detailed report where the valuer assesses the property from the street without entering the premises. It is quicker and less expensive but provides only a general estimate of the property’s value. This is suitable for low-risk loans or preliminary assessments.
3. Desktop Valuation
Desktop valuations are conducted remotely using data from property records, sales history, and online tools. While cost-effective and fast, they lack the accuracy of a physical inspection, making them suitable for low-risk lending scenarios or when time is a considerable constraint.
4. Automated Valuation Model (AVM)
An AVM is a computer-generated valuation that uses data analytics, property information, and recent market trends to provide an estimated property value. It is quick, often instant, and cost-effective, but lacks the accuracy of a physical inspection. AVMs are commonly used for pre-approvals, property screening, or preliminary evaluations before deciding on a formal valuation.
5. Short-Form Valuation
A short-form valuation is a streamlined version of a full valuation, providing key property details and a valuation estimate. It includes a summary of the property’s features, an external inspection, and recent comparable sales data, without going into the detailed analysis seen in a full valuation. This type is generally used by lenders when a more straightforward and quicker valuation is sufficient for loan purposes.
Can I Get a Free Bank Valuation?
Yes, some banks and financial institutions offer free valuations as part of their loan services. We at Dark Horse Financial offer a free bank valuation service outside of the loan application process to help you make the most informed decision when it comes to purchasing property or getting the most out of your equity.
When Are Free Bank Valuations Offered?
- As Part of a Loan Application: Many lenders include a free property valuation when you apply for a home loan, investment loan, or refinance. This is a common practice as the valuation helps the bank determine the appropriate loan-to-value ratio (LVR).
- Promotional Offers: Some banks run promotions that include free valuations as an incentive to attract new customers. These offers may be seasonal or tied to specific loan products.
How to Increase Your Chances of Getting a Free Bank Valuation
- Choose a Lender Offering Free Valuations: Research lenders that advertise free valuations as part of their service. Check the fine print to ensure the offer applies to your specific circumstances.
- Leverage Existing Relationships: If you’re an existing customer with a strong financial relationship with the bank, you may be able to negotiate a free valuation.
- Look for Promotions: Keep an eye out for limited-time offers where lenders waive valuation fees. These promotions can save you hundreds of dollars.
- Contact Us: Reach out to us to get a free property valuation. We’ll let you know the value of your property for loan, legal, or other purposes.
To Sum it Up
Bank valuations are necessary for real estate transactions, like purchasing or refinancing a property. It gives all parties insight into the actual value of a property and how much it should be sold for. Depending on the property type and lender, bank valuations can go from $300 up to more than $2000. However, there are certain instances when a borrower can get it for free. Some lenders offer free valuations as part of a loan application process. Ask your lender or seek help from financial experts like Dark Horse Financial to find out if you can get a free bank valuation.
Get a Free Bank Valuation Today
Dark Horse Financial offers free property valuation outside the loan application process. Reach out today to get your bank valuation on us.
