Whether you’re applying for a mortgage or refinancing your home loan, lenders will usually carry out a property valuation as part of the application process. For this purpose, they are likely to engage a Certified Practising Valuer (CPV) qualified to perform a valuation of properties. 


A CPV may carry out the assessment in two ways. They might visit the property physically to inspect the premises and take notes and pictures to complete the valuation report. Alternatively, they might use data from comparable sales in the vicinity to estimate the worth of your house. The findings are then compiled into a written report that mentions the property’s value and how it was determined.


But how does a property valuation affect your plans?


To answer that question, you’ll first need to understand how refinancing works. When you refinance a home loan, you are essentially ending your current mortgage and taking out a new one. However, your circumstances would likely have changed since you first applied for the home loan. The lender would thus want to assess their risk in advancing you a loan before approving your application for refinancing. So, just like the first time, in addition to your income and expenses, the lender will most likely carry out a formal assessment of your property to determine its worth and suitability as security for the mortgage. 


Depending on your home equity, financial circumstances, and your property’s value, you might be able to increase your borrowing and use the extra cash for renovation or any other purpose. On the other hand, if the value of your property happens to be low, pushing your loan to value ratio below 20 per cent, you might be required to pay Lenders Mortgage Insurance (LMI) if you refinance. If you’re only refinancing to secure a lower interest rate or reduce your monthly repayments, paying for LMI could be counterintuitive. Depending on why you want to refinance, it might be worth getting an independent property valuation to compare the costs and make an informed choice.


Appraisal vs. Valuation: What’s the difference?


While an appraisal and valuation both determine the market value of a house, a valuation is undertaken by a professional valuer who has completed the necessary qualifications. Compared to an appraisal, a valuation is a more detailed inspection of the property that considers its condition and age, functionality, appearance and room count, apart from the location and neighbourhood.


It includes a written report that details the value of the property and how it was determined. Such professional valuations are used by lenders to establish the property’s value to be used as security for a mortgage.


On the other hand, an appraisal from a real estate agent gives you an estimate of what your home might sell for, whether by auction or through a private sale. However, it is not a legally binding document, and it cannot be used when you apply for a home loan refinance. An informal appraisal basically gives you a ballpark figure to manage your expectations as a seller. Still, there’s no guarantee that the property will fetch the same price as what it was appraised for by a real estate agent. Such appraisals are generally based on recent sales in the area. Property features like age, size, and location will impact your property’s appraisal, as will any bells and whistles, like additional car parkings or proximity to schools and public transport,  that might make the property more appealing to buyers.


Overall, valuations are generally more conservative than appraisals. When carrying out a valuation, a lender is only concerned with how the property will perform as security for a mortgage. However, a real estate agent is focused on the best price your property can fetch.


How can I get the maximum value for my home?


As valuers and real estate agents assess the same property with different goals, preparing your home for a valuation differs from preparing it for sale. Valuers are typically looking at the property type and size, its location, condition and age. So instead of tugging at the emotional cords of a buyer with the aroma of home-baked goodies, it takes more practical enhancements to make an impact on your property’s valuation. 


The following tips could help you score better:


  • Ensure that the property is well presented
  • Enhance the look of the bathroom and the kitchen with these budget-friendly ideas
  • Adding a garage or a covered outdoor seating may improve the value of your house 
  • Introduce plenty of storage space in the house
  • Keep the home and lawn clean and clutter-free
  • Repair any cracks in the walls and fix any broken lights or leaky pipes
  • Remove any mould that might have formed in the kitchen or bathroom


While it’s worth making minor changes to make your home more presentable, you may avoid undertaking any significant repair work to satisfy a professional valuer unless it is absolutely essential. That’s because it’s often difficult to influence the valuation when you are refinancing a loan, especially when it is based on market data and not visual inspection. 


Can I get an independent valuation done for my property?


You may order an independent valuation from a professional to get an idea of your property’s worth. A formal valuation will generally cost you between $300-$600, but you might be able to secure a free valuation if  you are refinancing through a mortgage broker. However, keep in mind that all lenders do not accept independent property valuations and some might require their own valuation to be done. A mortgage broker could help you better understand various lenders’ costs and requirements.

By Vidhu Bajaj,
HashChing Content Writer



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