Quick answer
A valuation is a qualified professional's independent opinion of what an asset is worth on a particular date. In business lending, the lender orders a valuation of the property, equipment or business offered as security, then lends a percentage of that figure. Lender valuations are deliberately cautious, so they often come in below an agent's appraisal or the council's land value.
Key points
- Lenders base the loan amount on their valuer's figure, not the owner's estimate
- Types range from a desktop estimate to a full inspection with a written report
- A council or state land valuation is not the same as a market valuation
- In Queensland, valuers must be registered with the Valuers Registration Board
Before a lender agrees to lend against something, it wants a number it can rely on. A valuation is that number: an independent, professional opinion of what an asset would fetch on the open market at a set date, written up by someone qualified to give it.
For most secured business loans, that asset is property. But valuations are also done on equipment, vehicles, stock and even whole businesses.
Which kinds of valuation will you come across?
| Valuation | Method | When lenders order it |
|---|---|---|
| Desktop valuation | No visit; sales data and records only | Standard homes, low loan-to-value loans |
| Kerbside valuation | Exterior inspection from the street, plus data | Lower-risk residential security |
| Full valuation | Inside and out inspection with a detailed report | Commercial, rural, unusual or high-value property |
| Equipment or plant valuation | Specialist assesses age, condition and resale market | Asset finance, refinancing owned machinery |
| Business valuation | Analysis of earnings, assets and goodwill | Buying or selling a business, some acquisition loans |
Commercial property valuations often weigh the lease as heavily as the bricks: the strength of the tenant, the years remaining on the lease and the rent being paid. Our guide on how lenders value commercial property covers that approach.
A valuation, an appraisal and a land value aren’t the same thing
Owners often have three numbers in their heads and assume they should match.
An agent’s appraisal is a sales estimate, aimed at winning a listing. Agents provide them at no cost and they’re handy, though no lender relies on one.
A statutory land valuation, such as the ones the Queensland Government publishes under its land valuation program, values the land for rates and land tax. It generally ignores the buildings, so it can sit well above or below what the whole property is worth.
A lender’s valuation is a market value prepared for mortgage security purposes. It’s addressed to the lender, which relies on it, and it tends to be cautious.
The person signing a lender’s report also has to be properly qualified. Queensland, for instance, requires valuers to be registered with the Valuers Registration Board of Queensland under the Valuers Registration Act 1992, and the board keeps a public register you can search.
Need to borrow against property and want to know how the valuation might land? Start an enquiry and we’ll walk you through it.
Why the valuation decides your loan size
Lenders set a maximum loan-to-value ratio for each type of security, and the valuer’s figure is the “value” in that sum. A shortfall of $100k in the valuation can cut tens of thousands from what you can borrow.
Worked example: a Geelong mechanic’s workshop
A mechanic owns a freehold workshop and believes, based on a neighbour’s sale, it’s worth $1.5m. They apply for $700k to buy out a retiring partner, with a lender whose limit for this type of property is 65% of value.
At $1.5m, 65% would be $975k: plenty of headroom. The lender’s valuer inspects and reports $1.32m, noting that the neighbour’s building had a larger yard and newer roof. At $1.32m, the ceiling falls to $858k. The $700k loan still fits, but the LVR has risen to 53%, and a second request later for fit-out money would now be tighter. Running scenarios in our property equity calculator before applying helps you plan for a cautious figure.
For a step-by-step on the process, read how valuations work for business loans. If the figure comes back short, see the options for when the bank wants more security than you have.
Want a lender to put a value on your property?
The valuation is one step; knowing which lender will value your type of security sensibly is another, and that’s the part we can help with. Telling us about it is roughly a sixty-second job, and asking leaves no trace on your credit history. Nothing gets shopped around to a host of lenders; an actual person on our side works through your enquiry and calls you back. Give us your honest estimate of the property’s value and what’s owed on it, so we can match you with a lender whose numbers will work from the start.
Frequently asked questions
Who pays for the valuation?
Usually the borrower, either upfront or as a fee taken at settlement, even though the lender orders it and the report is addressed to the lender. Costs depend on the property type and the depth of the report; commercial and rural valuations generally cost more than a simple residential one.
Can I use my own valuation?
Generally not. Lenders instruct a valuer from their approved panel so the report is independent and addressed to them. A valuation you commissioned can still help as background if the lender's figure seems low.
Why is the lender's valuation lower than the agent's appraisal?
An agent's appraisal estimates what a property might sell for in a good campaign. A lender's valuer gives a cautious current market value for security purposes and must be able to support it with comparable sales. The gap can be meaningful, particularly for unusual property.
What can I do if the valuation comes in low?
Ask whether you can supply comparable sales the valuer may have missed, or whether another lender would use a different valuer. Otherwise you can borrow less, add another security, or choose a product that allows a higher loan-to-value ratio.
How long is a valuation valid?
Lenders typically rely on a valuation for about three months, sometimes longer in stable markets. If settlement drags beyond that, the lender may ask for an update.