A bank valuation that lands below your contract price is one of the most stressful surprises in a property purchase. It matters because lenders base the maximum loan on their own valuation, not on the price you agreed to pay. If the valuation is lower, the loan shrinks and you may need to find the difference elsewhere, often before settlement.
This is general information, not financial advice. Speak with your mortgage broker, lender or a licensed adviser about your situation.
Why the Gap Matters: LVR and LMI
Lenders express risk as a loan-to-value ratio (LVR): the loan divided by the property's value. If your lender will lend up to 80 per cent of its valuation and the valuation comes in lower than the price, your loan falls with it, and the shortfall must come from savings or another source. A lower valuation can also push your LVR above 80 per cent, which can trigger lenders mortgage insurance (LMI) or extra costs. Because you are generally bound by the contract, settlement is still due.
Why Valuations Come in Low
- Conservative approach. Lender valuers act for the bank, whose priority is protecting its security.
- Limited or dated sales evidence. In fast-moving markets, recent sales may not yet reflect what buyers are paying.
- Property-specific issues. Defects, unapproved work, unusual layouts or restrictive titles can reduce the assessed value.
- Off-the-plan and unregistered land. These are the classic risks, because the value at settlement may differ from the price set months or years earlier.
Lenders may not always order a full valuation. Broker sources report that for some established properties bought through an agent, with a loan below a certain LVR, a lender may skip the physical valuation and use an automated one. That policy varies between lenders.
Your Options
- Find out the figure and the reasons. Ask your broker or lender what the valuation was and what comparable sales were used. Some lenders will not share the report itself.
- Ask for a review with evidence. Most lenders do not have a formal appeal process, but some will consider a challenge supported by recent comparable sales the valuer may have missed.
- Ask about a second valuation. Brokers sometimes arrange another valuation through a different panel firm, or ask a different lender to assess the property.
- Cover the gap. This could mean extra deposit, funds from savings or a family guarantee. A guarantor arrangement can work but is more complex and carries risk for the guarantor, so get independent advice.
- Renegotiate the price. If the contract allows and the market supports it, a lower valuation can be a negotiating point with the seller.
- Reconsider the purchase. If the numbers no longer work, check your contract conditions, including any finance clause, with your solicitor or conveyancer.
Where an Independent Valuation Fits
A valuation you commission yourself does not bind a lender, which will rely on its own panel valuer. It can still be useful. A properly documented independent report, with the comparable sales and adjustments set out, gives you something concrete to take to your broker, support a challenge or inform a negotiation with the seller. It also helps you judge whether the bank is being conservative or has identified a genuine problem.
Reducing the Risk Before You Sign
- Check recent sales of comparable properties and ask your broker how the lender is likely to value the property.
- Inspect the property for defects and confirm approvals for extensions and structures.
- Be cautious about bidding well above recent sales, especially at auction.
- Keep a buffer in your budget for a possible shortfall, and check your contract's finance clause before you sign.
If you need a second opinion on a lender's figure, get in touch with our valuers. You can also read how a registered property valuer supports serious property decisions.
