Finance Valuations

Finance valuations for banks are almost always ordered by the bank from a panel of valuers who are accredited with them.  AHV does not undertake valuations for any lenders; we specialise in non-mortgage valuation work.

More valuations are done for finance than all other purposes combined (excluding mass valuations for Government rating purposes). When a bank lends money to someone to buy real estate then the loan is normally secured against the property by way of a mortgage. Before the bank will lend against real estate it will first need to know the value of the property, and will only lend a portion of that value – typically around 90% for residential property and 70% for commercial or rural properties. The actual percentage lent (the loan to value ratio or LVR) may vary with the age and condition of the property, and its location – properties in areas with a shortage of buyers and long selling periods (such as a small country town) may have a lower LVR.

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The amount lent also varies according to the income of the borrowers/s and the “riskiness” of that income i.e. how likely is the income to fall in the future. For example: people starting a new job and those in businesses or contract work with uneven income may not be able to borrow as much against a particular property as someone with a secure, long-term job.

The type of valuation required by the bank will vary depending on a number of factors. Where a property has been purchased on the open market then the purchase price is assumed to be the  value and a full inspection valuation may only be required if the LVR is high, say above 80%. The purpose of the valuation is to ensure that the price paid by the purchaser is within the expected range. Below 80% the bank may arrange a “drive by” valuation or use an electronic valuation offered by a company such as RP Data which utilise known information about the property (such as its last sale price) and uses statistical analysis to produce an approximate value.

Where a property is being refinanced from a different lender, or an existing loan is being increased, then a full-inspection valuation by a professional valuer is often required. As there is no sale of the property on which to rely the bank must obtain a valuation before it can lend.

In all cases the role of the valuation is to reduce the bank’s risk and to ensure that if the mortgagee is unable to make repayments for some reason then the bank will be able to recover its loan through sale of the property (in a “mortgagee sale”).

Finance valuations are the most risky valuations from the valuer’s perspective as the valuer will be held to account by the lender if the lender loses money as a result of the property having been overvalued when the loan was advanced. Valuers have professional indemnity insurance to assist them if they are subject to such a claim by a lender however they must pay an “excess” on each claim of several tens of thousands of dollars and it may affect their ability to obtain insurance in the future.