Why the Bank's Valuation Came In Low — And What You Can Actually Do About It

The phone call I keep having at the moment

There's a call I've had more times in the last two months than in the whole of last year. The client has signed a contract, or lodged a refinance, everything looked straightforward — and then the bank's valuation lands well under what everyone expected. Suddenly the deal needs another forty grand in cash, or mortgage insurance nobody budgeted for, or it doesn't work at all.

It isn't bad luck, and it usually isn't a mistake by the valuer. It's what happens when property values are moving down and the valuation system is built to look backwards.

Cotality has Sydney dwelling values down about 1.4% in July, roughly 4.0% over the three months to July, and around 2.0% lower than a year ago, with the median dwelling value near $1.24 million. Auction clearance rates across the combined capitals were around 53.6% in early August, and Sydney slipped below 50% with about 90 auctions withdrawn in a single week.

When the market is drifting down and fewer properties are actually selling, valuations get conservative. Here's how the process really works, what a short valuation costs you, and what you can genuinely do about it.

What a bank valuation actually is

The most important thing to understand is who the valuation is for. It isn't for you. The lender orders it, the lender instructs the valuer, and the valuer's job is to tell the bank what the property would realistically fetch if the bank had to sell it. It is a risk document, not a market appraisal.

That's why a bank valuation and an agent's appraisal can sit so far apart and both be defensible. An agent is telling you what an enthusiastic buyer might pay on a good day. A valuer is telling the bank what the property is worth on a bad one.

A few consequences follow from that, and they catch people out:

• The bank lends against the lower of the purchase price or the valuation. Always. If you pay $1.2 million and it values at $1.15 million, the bank works off $1.15 million.
• You can't order it yourself. A valuation you commission privately carries no weight with a lender's credit team.
• Valuers work from settled sales, not listings. Settled sales lag the market by roughly three to six months, because that's how long a contract takes to run its course. What actually hurts you in a soft market isn't the lag, it's the thinness — fewer sales to compare against, so the valuer leans to the cautious end of the range.

The three types, and why yours matters

Lenders don't order the same valuation for every deal. They pick based on how much risk they're carrying, which usually means your LVR — the loan divided by the property value.

• Desktop or AVM. A computer-driven estimate using sales data, with nobody visiting the property. Typically used at lower LVRs, often under about 60%. Free or close to it, and it can come back the same day.
• Kerbside. A valuer physically attends but doesn't go inside — they assess the property from the street. Common in the 60% to 80% LVR band, usually a couple of hundred dollars, and generally back within a day or two.
• Full inspection. A valuer walks through the property inside and out. Standard once you're above 80% LVR, or where the property is unusual. Costs more and can take up to about a week.

The type matters enormously. A desktop valuation can't see that you spent $150,000 on a new kitchen and bathroom, because renovations don't show up in sales data, and a kerbside valuation sees a tidy facade but not the work behind it. If you've renovated, expect a desktop or kerbside number to undervalue you — and that's one of the few things you can influence, by asking for a full valuation upfront.

What a short valuation actually costs you

Two scenarios, with real arithmetic.

Buying. You've agreed to pay $1,200,000 with a 20% deposit of $240,000, so you need a loan of $960,000. The valuation comes back at $1,150,000, and the bank now measures your loan against that figure — an LVR of roughly 83.5%, over the 80% threshold. Your options: find about $40,000 more in cash, pay lenders mortgage insurance, or renegotiate with the vendor. The valuation doesn't reduce what you owe the seller. The contract price stands; only the bank's contribution shrinks.

Refinancing. You believe your home is worth around $1,300,000 and you owe $950,000, so on your numbers you're at about 73% LVR and comfortably clear of mortgage insurance. The valuation lands at $1,180,000 and your LVR is suddenly just over 80%. That can mean an LMI premium on the new loan, a worse rate tier, less equity available for a renovation or an investment deposit, or a refinance that simply doesn't proceed.

LMI is the sting. Depending on the loan size and how far over 80% you land, the premium can run from a few thousand dollars into the tens of thousands, and it's usually a cost you were refinancing specifically to avoid.

Can you dispute it?

Yes, but manage your expectations. A formal valuation review succeeds when you can hand the valuer evidence they didn't have, not when you simply disagree with the number.

What actually moves a valuation:

• Genuinely comparable settled sales the valuer missed. Same suburb, similar land size and internal area, similar condition, ideally within the last three to six months. Three good ones beat ten loose ones.
• A factual error. Wrong number of bedrooms, wrong land size, wrong title type, a granny flat or a renovation not accounted for.
• Evidence of works. Council approvals, builder invoices, before-and-after photos for a renovation the valuer couldn't see.

What doesn't move it: the price you paid, what the agent told you, an online estimate, or what your neighbour reckons their place is worth.

The other lever is often more effective and gets overlooked. Different lenders use different valuation panels, and two firms can value the same property on the same day and land a fair way apart. If a valuation comes in materially short and there's no new evidence to submit, taking the application to a lender with a different panel is frequently a faster and better answer than arguing the first one. That's a call worth making early, before your finance clause runs out.

How to give the valuation the best shot

• Order it upfront where you can. Many lenders will run a valuation before a full application. On a refinance especially, knowing the number early stops you building a plan on a figure that doesn't hold.
• Ask what type is being ordered. If you've renovated, push for a full inspection rather than a desktop, and be prepared for the fee.
• Prepare for the inspection like an open home. Tidy, well-lit, access to every room, garage and outdoor areas clear. A valuer is human and forms an impression of condition.
• Hand over your own comparable sales and improvements. Three or four genuinely similar recent sales, plus a written list of what you've done — new kitchen and year, new bathroom, ducted air, solar, approved extension. Don't rely on it being noticed.
• Build in a buffer. If the deal only works when the valuation lands at the top of expectations, it's too tight for this market. Model it 5% lower and see whether you still have a deal.

Where this sits in the bigger picture

The Reserve Bank left the cash rate on hold at 4.35% on 11 August, a unanimous decision following three increases in February, March and May. Headline inflation eased to 3.8% in the year to June with the trimmed mean around 3.6% — both still above the 2–3% target — and the Board was explicit it would raise further if upside risks materialise.

So the backdrop is higher borrowing costs, softer values, and more caution across the system. Valuations are where that caution becomes visible, and it tends to show up at the worst possible moment — after you've signed, or a fortnight into a refinance. The fix is mostly preparation: get the valuation done early rather than late, put the evidence in front of the valuer instead of hoping, and never build a deal that only survives on the optimistic number.

If your valuation has come in under expectations, or you'd rather know where you stand before you sign anything, I'm happy to have a free, no-obligation chat and go through it with you. With access to more than 70 lenders and eight years in lending, including my time at CBA, I can usually tell you fairly quickly which lenders are likely to value your property sensibly.

This is general information only and not personal financial advice — everyone's situation is different, so please get in touch and we'll look at yours together. Property values, interest rates and lender policy all change, so treat the figures here as a snapshot in time. For contract and finance-clause questions please speak to your solicitor or conveyancer, and for anything tax-related your accountant or a licensed adviser.

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