Understanding home appraisals and the role of property valuations in mortgage refinancing

The prices of properties are constantly changing and it’s no surprise that lenders often want to get a good idea of how much your home is worth. That’s where property valuation for refinancing comes in.

Home appraisal vs. property valuation

Home appraisals and property valuations are terms often used interchangeably, and while both of these services provide information on your home’s value and worth, appraisals and valuations are quite different.  

What is a home appraisal?

A home or property appraisal is the process of determining how much your property is worth based on the current market conditions. A home appraisal is usually completed by a real estate agent to provide an estimate of the value of your home.  

During a property's appraisal, your real estate agent will look at several different factors to come up with an estimated market value, including:

• Property and block size
• The number of bedrooms and bathrooms
• Fixtures and fittings
• Property age and condition
• Location
• Access to local facilities and amenities (for eg: schools, public transport and shopping centres)
• Recent sales data
• Market conditions
• Economic environment

What is a property valuation?

A property valuation is carried out by a Certified Practicing Valuer (CPV) who has completed formal education and training in the field. Property valuers conduct a detailed analysis of the property that forms the basis of a legally binding report that sets out a definitive value for the property.  

As part of the valuation process, a valuer will usually consider various points, including:

• Location
• Size and type
• Accessibility
• Condition and damage
• Home features
• Structural faults
• Caveats or encumbrances
• Planning restrictions and local council zoning

Unlike an appraisal, a fee is usually charged for an independent property valuation and can be anywhere from $300 to $600. Because a property valuation provides a set value for a home, many lenders require a home valuation as part of the refinancing process. An accurate valuation helps them to determine how much equity you have in your home. Learn more about understanding your property’s current value here.  

How are property valuations completed?

Thanks to technology and detailed property databases, lenders and Certified Practicing Valuers have a few different options available to them when it comes to determining the property value for refinancing purposes.

The three main methods used to complete a property valuation are:

1. Desktop valuation: A desktop or remote valuation is an automated valuation completed digitally based on property market data, recent comparable sales in the area and existing property listings. These types of valuations are usually carried out on low-risk loans.
2. Kerbside valuation: A kerbside valuation is when the Certified Practicing Valuer visits the site and inspects the home’s exterior without entering the property. Kerbside valuations are usually completed for low to medium-risk loans where the loan to value ratio (LVR) is around 80%.  
3. Full valuation: A full valuation is the most comprehensive type of property valuation. It involves a valuer inspecting the property inside and out to produce a detailed and legally binding property valuation report. Full valuations are usually completed for high-risk loans where the LVR is above 80%.  

Property valuations are often more on the conservative side, especially when compared to a home appraisal carried out by a real estate agents.

Why is property value important for refinancing?

When you decide to refinance your home, your lender might require a property valuation as part of the refinancing process.  

A valuation provides lenders with important information including:

• How much the property is worth  
• How much equity you’ve built up in your home
• How much could the property be sold for in the event that the property is repossessed

This information helps lenders identify how much risk you pose to them as a potential borrower and how much they can comfortably lend to you.  

Lenders also use the property value to work out whether or not you meet their lending criteria. They’ll use the valuation to figure out:

• Your loan to value ratio (LVR)
• Your interest rates (these are often tiered depending on your LVR)
• If the security or home is acceptable, and  
• Whether you have enough home equity (if you’re planning on refinancing to tap into your equity)

Want to switch to Unloan? Learn more about our eligibility criteria here, and our home loan features here.  

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This article is intended to provide general information only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. Please consider seeking financial advice before making any decision based on this information.‍

Unloan is a division of Commonwealth Bank of Australia.

Applications are subject to credit approval, satisfactory security and you must have a minimum 20% equity in the property. Minimum loan amount $10,000, maximum loan amount $10,000,000, and total borrowings per customer across all Unloan loans is $10,000,000. (For purchase loans a minimum 10% equity is required - however a Lenders Mortgage Insurance (LMI) premium and higher interest rate apply. In some cases, depending on the property’s location or type, an LMI premium may also be required for LVR between 70.01% to 80%). For loans with Lenders Mortgage Insurance (LMI) the minimum loan amount is $10,000, maximum loan amount is $3,000,000 and total borrowings per customer across all Unloan loans is limited to $3,000,000).

Unloan offers a 0.01% per annum discount on the Unloan Live-In rate or Unloan Invest rate upon settlement. On each anniversary of your loan’s settlement date (or the day prior to the anniversary of your loan’s settlement date if your loan settled on 29th February and it is a leap year) the margin discount will increase by a further 0.01% per annum up to a maximum discount of 0.30% per annum. Unloan may withdraw this discount at any time. The discount is applied for each loan you have with Unloan.

*At Unloan, we do not charge any annual, application, banking, account, transaction, late or exit fees. In certain circumstances you may be required to pay a Lenders Mortgage Insurance (LMI) premium. Learn more about why this is applied and how it works. Government fees may also apply. Learn more about government fees here. Your current lender may charge an exit fee when refinancing.