Definition
A property valuation is an assessment of what a property is worth, used by lenders to work out the loan-to-value ratio and how much they will lend against it. Lenders vary: some insist on a full inspection by a certified valuer, others accept a desktop or computer-generated figure, a recent sale contract or their own review. Lenders tend to value conservatively.
For any property-secured business loan, the value of the property sets the ceiling on what can be borrowed. That is why the valuation is such an important step.
Types of valuation
Lenders use different approaches. Some order a formal valuation from a qualified valuer who inspects the property. Others rely on desktop or automated estimates, recent contracts of sale or their own assessment, particularly for smaller or short-term loans. Commercial property is often valued with reference to rent and lease terms as well as comparable sales.
Why values differ
Lenders are cautious. They value on what the property would realistically sell for, sometimes under less than ideal conditions. That can produce a figure lower than an agent’s appraisal. Our guide to LVR for business loans explains how the value feeds into borrowing limits.
Plan conservatively
Use a conservative estimate when planning, and test it in the LVR and equity calculator. To see what your property might support, make one enquiry.
Common questions
Who pays for a valuation?
It depends on the lender. Some charge the borrower, some absorb the cost. Ask whether it is refundable if the loan does not proceed.
Why was my valuation lower than expected?
Lenders value conservatively, based on comparable sales, property type and market conditions. Owner estimates and agent appraisals are often higher.
Sources and further reading