Completing a valuation of a property that you are purchasing is a required part of the mortgage application process for the majority of lenders. In most cases the bank will arrange to have an independent valuation to ensure the purchase price reflects market value and for the bank to determine the value of the property that is being used to secure a home loan. Primarily, the valuer’s role and focus is on protecting the lender.
Why is the valuation important to your loan?
The valuation figure is key when the banks are determining how much they will lend against your security – a ration known as “loan to value” or LVR. If you are purchasing a property the bank will use the lower of the purchase price or the valuation to determine the maximum loan amount. If you are refinancing the valuation figure will determine that ratio alone.
Things that the valuer will look for to determine their price valuation include:
- Location and land size;
- Building structure, age, conditions and any faults;
- Presentation and interior fit-out;
- Landscaping and additions (pool, garage, carport, shed etc); and
- Any relevant planning and zoning restrictions.
Once evaluating these features of the property the valuer will use recent sales of comparable properties in the surrounding area to place the property being purchased or refinanced in context and provide the lender with a valuation. You do have the option to request a valuation report on a property you may wish to purchase or your current property. This is a good option if you are looking to bid at auction.
What can you do?
If you are using equity in an existing property to assist with another purchase it is important to maximise its value. Whilst you cannot control the market and other sales in your street and suburb there are a few things you can do:
Be aware that the valuer will likely photograph the kitchen and bathroom;
Finish any odd-jobs or small improvements/renovations you are in the middle of – even though they may be small they provide the impression that work needs to be done to the property; and
Know the area – any insight you have about services, schools and local infrastructure can help the valuer.