Discover how property valuations impact your mortgage application. Learn about AVMs, desktop, short-form, and long-form valuations to understand which type suits your home loan needs.
Valuations are a key piece of information when applying for finance, they allow the lender’s to determine how ‘risky’ providing finance for the property will be. This is determined through the market value and description of a property based on key indicators, such as;
- Location
- Land size
- Quality
- Comparable sales in the area
- Market conditions
- Potential growth
To the inexperienced borrower, a valuation is a valuation. However, there are multiple types that can be produced. Let me break down each type and how one over another might be beneficial in your scenario.
This type of valuation is the easier, fastest and least intrusive of all. When ordered, a software-based system uses mathematical and statistical models to estimate the value of a property. It requires no physical inspection and usually takes less than 24 hours to complete a report! An AVM can be handy if the property has certain issues that you’d rather not highlight to the bank. However, because it doesn’t account for recent renovations or upgrades, it may not always reflect the true market value.
Some banks in major Australian cities will generate a valuation report automatically once they see a signed contract of sale—this is sometimes referred to as a ‘contract of sale’ valuation.
A desktop valuation is similar to an AVM but involves a little more human input. A valuer is assigned to review the property using online data, and sometimes they’ll even drive past to get a quick look. This process typically takes 24–48 hours.
This is when the involvement from a valuer heats up. A short form will always require an inspection, which is arranged at a convenient time for the valuer and property owner/manager. This will normally take 1-5 business days and is a detailed report with internal and external photos of the property. Depending on the lender, there may be an upfront cost applicable to the owner.
Depending on the lender, there might be an upfront cost for the owner, typically ranging between $200–$800, depending on the location.
Lenders tend to scrutinise short-form valuations closely because, unlike an AVM or desktop valuation, there’s nowhere to hide any issues with the property. On the flip side, the valuation estimate tends to be more accurate and often higher than an AVM or desktop valuation.
This is the most comprehensive (and expensive) type of valuation. It’s typically used for commercial or development lending, but high-end residential properties (think $4 million and above) may also require it.
Long-form valuations can be over 100 pages long and take anywhere from 2–6 weeks to complete. They involve highly experienced valuers and cost upwards of $1,500.
While lenders have the final say on which type of valuation is required, your mortgage broker can help guide you on what to expect. Choosing the right type of valuation for your situation can make a big difference in your loan application process.
Got questions about valuations or your mortgage application? Reach out to My Mortgage Freedom- we’re here to help!