When you apply for a home loan, the lender does not simply accept the purchase price as the property's value. They commission an independent valuation — either a desktop assessment (using data and comparable sales) or a full physical inspection. Your loan amount is calculated based on the valuation figure, not the contract price. If the valuation comes in at or above the purchase price, there is no issue. If it comes in below the purchase price, your effective LVR increases, and you may need to find additional deposit funds or restructure the loan.
How Lender Property Valuations Work in Australia
Lenders use valuations to determine the security value of the property — the amount they believe the property could be sold for in the current market. This protects the lender against the risk that the borrower overpaid for the property.
There are three types of valuation used by Australian lenders:
Automated Valuation Model (AVM): A computer-generated estimate based on sales data, property characteristics, and statistical modelling. Used for low-risk, low-LVR applications. No physical inspection. Instant or same-day result.
Desktop valuation: A registered valuer reviews sales data, property listings, and publicly available information to estimate the value — without physically inspecting the property. Typical turnaround: 1–3 business days.
Full (physical) valuation: A registered valuer physically inspects the property, assessing its condition, features, location, aspect, and comparable sales. This is the most thorough and reliable method. Typical turnaround: 3–7 business days. Cost: $300–$600 (usually charged to the borrower).
The type of valuation commissioned depends on the lender's risk appetite, the LVR, the loan amount, and the property type. Higher-risk applications (high LVR, unusual properties, regional areas) are more likely to require a full physical valuation.
- ✓AVM — automated, instant, no inspection (low-risk applications)
- ✓Desktop valuation — valuer reviews data without visiting (1–3 days)
- ✓Full physical valuation — valuer inspects property in person (3–7 days)
- ✓Cost of full valuation: $300–$600 (charged to borrower)
- ✓Valuation is ordered by the lender, not the borrower
- ✓The valuer is independent — they work for neither buyer nor seller
What Happens When the Valuation Comes in Below the Purchase Price
If the valuation is lower than the purchase price, the lender uses the lower figure to calculate LVR. This increases your effective LVR and can create several problems:
Example: You are purchasing a property for $800,000 with a 10% deposit ($80,000). You need to borrow $720,000, which at the purchase price represents 90% LVR. The valuation comes in at $750,000. Now $720,000 represents 96% LVR on the valued amount — well above the lender's maximum 90% LVR. You either need to find an additional $37,500 in deposit (to get back to 90% LVR on $750,000) or reduce your loan amount.
Common consequences of a low valuation:
You need a larger deposit: The shortfall between the purchase price and the valuation must come from your own funds — you cannot borrow against value that the lender does not recognise.
LMI may be triggered or increased: If the higher LVR crosses the 80% threshold, LMI becomes payable. If LMI was already required, the higher LVR means a higher LMI premium.
The loan may be declined: If the LVR exceeds the lender's maximum (typically 95% for standard loans, 90% for some lenders), the application may be declined entirely.
The interest rate may increase: Some lenders price loans based on LVR tiers — a higher LVR can mean a higher interest rate.
A Low Valuation Does Not Mean You Overpaid
Valuations are conservative by design — they reflect what the valuer believes is the market value based on comparable sales, not what a willing buyer might pay. In competitive markets, properties regularly sell above 'market value' due to buyer demand. A low valuation does not necessarily mean you made a bad decision — but it does affect your loan terms.
How to Challenge or Work Around a Low Valuation
Option 1 — Request a review: If you believe the valuation is inaccurate, you (through your broker) can provide additional comparable sales evidence to the valuer and request a review. Include recent sales of genuinely comparable properties (similar size, condition, location, and age) that support a higher value. Valuers will consider additional evidence but are not obligated to change their assessment.
Option 2 — Order a new valuation with a different lender: Different lenders use different valuation panels. Your broker can submit the application to a second lender whose valuer may assess the property differently. This is one of the key advantages of using a broker — they can quickly pivot to alternative lenders.
Option 3 — Negotiate the purchase price: If the valuation supports a lower value and the vendor is motivated, you may be able to renegotiate the purchase price to match the valuation. This is a legitimate negotiation point — 'the bank values it at $X, so I can only borrow based on $X.'
Option 4 — Increase your deposit: If you have access to additional funds (savings, gift from family, guarantor support), you can cover the shortfall yourself. This keeps the purchase on track without renegotiating or changing lenders.
Option 5 — Delay and revalue: In a rising market, waiting 3–6 months and revaluing may result in a higher figure. However, this requires the vendor's agreement to delay settlement or the ability to renegotiate the contract timeline.
Your Broker Is Your Best Advocate
An experienced mortgage broker knows which lenders tend to value more conservatively or generously in specific suburbs. They can also prepare comparable sales evidence to submit alongside the application, increasing the chance of a valuation that matches or exceeds the purchase price. If the first valuation comes in low, your broker can quickly arrange an alternative.
Frequently Asked Questions
About the Author
Sakib Manzoor
Senior Finance Wellness Expert
Sakib Manzoor is the founder of Secure Finance and brings extensive experience in Australian mortgage broking and financial wellness. Specialising in helping clients achieve their property finance goals through personalised strategies and expert guidance, Sakib is FBAA accredited and committed to providing clear, actionable advice. All content is written to meet Australian regulatory standards and is regularly updated to reflect current market conditions.