Lender-assessed value can be different to the purchase price of the property. Lender-assessed value is subjective to each lender and is used to determine your Loan to Value Ratio (LVR).
How is lender-assessed value calculated?
Lender-assessed value is calculated by a lender or appraiser who evaluates a property to determine its estimated value. The process of calculating lender-assessed value can vary depending on the lender and the type of property, but typically involves the following steps:
- Property inspection: The appraiser or lender will inspect the property to assess its condition and features. This can include a review of the property’s location, size, age, construction quality, and any unique features that may impact its value.
- Comparative market analysis: The appraiser or lender will review recent sales of similar properties in the area to get an idea of what similar properties are selling for in the current market.
- Cost approach: The appraiser or lender may also use a cost approach, which involves estimating the cost of rebuilding the property from scratch and factoring in any depreciation.
- Income approach: The appraiser or lender may use an income approach, which involves estimating the potential income that the property could generate if it were rented out.
Factors that can affect Lender-Assessed Value
Bank valuations are looking many different factors when assessing the value of a property. Some key ways are the following.
Condition of the exterior and interior
Before you order a valuation, consider hiring a professional building inspector to assess any major structural damages or repairs in your property that need attention. Having damages in your property can negatively impact the outcome of your valuation.
During a full valuation, your home is inspected and assessed based on how it looks on that day. Any incomplete renovations or home improvement jobs can also negatively impact your valuation.
Location
Location of your property can be significant factor during the process of your valuation. It is important for the lender to understand the type of area your property is located in and what surrounding amenities, such as shopping centres, schools, public transport, parks, there are as this can impact the demand for properties.
Size of the home
Floor space is key in the valuation assessment. This can also be broken down into different weightings with bedrooms and bathrooms in your property to be key areas of focus. Sometimes, renovating your home to increase your floor space, could potentially increase your property’s value.
Comparable sales
Recent sales of similar properties in the area can also impact lender-assessed value. Appraisers and lenders will typically look at recent sales of similar properties in the area to understand market value.
Unique features and facilities
Any unique features of the property such as a swimming pool, gym or a view, can have an impact on its value.
The difference between lender-assessed value and market value is that lender-assessed value is the value that a lender places on a property for the purposes of securing a mortgage. Market value is the estimated value of a property based on current market conditions.
Lender-assessed value is typically lower than market value as it is based on a more conservative estimate of the property’s worth. Lenders use lender-assessed value to determine how much they are willing to lend against a property and to calculate the loan-to-value ratio (LVR) for the mortgage.
The frequency of updates to lender-assessed value can vary depending on the lender and the type of property. In some cases, lenders may update the assessed value of a property on an annual basis, while in other cases, they may only update it when the property is refinanced or sold.
If you are planning to sell or refinance your property, it may be worth getting an updated appraisal to ensure that the assessed value accurately reflects the current market conditions and the condition of the property. An experienced real estate agent or appraiser can provide guidance on the best approach to take based on your individual circumstances.
Yes, the lender-assessed value can vary depending on whether the property is being purchased as an investment or as an owner-occupied property. This is because lenders may view investment properties as having a higher level of risk compared to owner-occupied properties.
For example, an investment property may have a higher assessed value if it has a track record of generating strong rental income. An owner-occupied property may have a higher assessed value if it is located in a desirable area with good schools and amenities.
