A property valuation is an assessment of what your property is worth at a particular point in time. When you apply for a home loan, refinance or access equity, your lender may use a valuation to work out how much it is prepared to lend against the property.

Your idea of what your home is worth may not be the same as the value your lender uses. An online property estimate or a real estate agent's appraisal can give you an indication of value, but your lender may arrange its own valuation when assessing your loan.

Your property valuation can affect:

• your loan-to-value ratio (LVR)
• how much equity you may be able to access
• whether you can refinance
• the loan options available to you
• whether Lenders Mortgage Insurance (LMI) may apply

This becomes particularly important when you're refinancing to access equity. For example, you might believe your home is worth $900,000. But if the lender values it at $850,000, your LVR and the amount of usable equity available to you could be lower than expected.

Lenders can use different methods to assess the value of a property. The method they choose can depend on the property, the loan application and the lender's own requirements.

The four common types of property valuations are:

Each method provides the lender with a different level of information about the property.

An automated or desktop valuation can be quicker because there is no physical inspection. A full valuation takes a closer look at the property and may be used when the lender needs a more detailed assessment.

What's important to know is that the borrower generally doesn't get to choose the type of valuation. The lender typically decides which method to use based on its lending policy, the property and your loan application.

An automated valuation, often called an AVM, uses computer models and property data to estimate the value of a property. There is no physical inspection.

An AVM can use information such as:

• recent sales of similar properties
• property location
• property type and characteristics
• historical sales data
• other available market information

The model compares this information to estimate what the property may be worth.

AVMs can be useful when there is enough reliable data about a standard residential property. They can also be much faster than arranging a physical inspection, which can help speed up some loan applications and refinancing assessments.

An AVM can provide a useful estimate, but it does not physically inspect your home.

This means it may not fully capture things such as a recent renovation, the condition of the property, an unusual layout or features that make your home different from comparable properties. If your property has characteristics that aren't well represented in the available data, your lender may use another valuation method.

A desktop valuation is completed without the valuer physically visiting the property.

Unlike an AVM, however, a desktop valuation is carried out by a qualified valuer, who reviews available information about the property and the local market.

The key difference is who is doing the assessment. An AVM uses an automated model to estimate the property's value. A desktop valuation involves a valuer reviewing available information remotely. Both avoid a physical inspection, but they are not the same process.

The valuer can consider information such as:

• recent comparable sales
• property details and records
• location
• land and building characteristics
• available market evidence

The quality and amount of information available can affect how confidently the property can be assessed without an inspection.

Because the valuer doesn't visit the property, they may not see improvements or issues that aren't apparent from the available information. For example, if you've recently renovated the kitchen or added significant improvements, those changes may not be fully reflected in the information being assessed.

A kerbside valuation, sometimes called a drive-by valuation, involves a valuer viewing the property from outside, usually from the street. There is no internal inspection.

The valuer can consider the property's external appearance and characteristics, along with available market evidence and comparable sales.

They may look at things such as:

• the property's location
• external condition
• apparent size and layout
• land and building characteristics
• surrounding properties
• recent comparable sales

The valuer doesn't have access to the inside of your home. That means they won't see improvements such as a renovated kitchen, new bathroom or upgraded interiors during the inspection.

If you've spent significant money improving your property, it's worth understanding that an external inspection may not capture everything you've changed.

A full property valuation involves a physical inspection of the property, both inside and outside. The valuer assesses the property in greater detail and considers its characteristics alongside relevant market evidence and comparable sales.

The valuer may assess:

• the condition of the property
• the size and layout
• the quality of improvements and finishes
• renovations and extensions
• land characteristics
• location
• parking and other features
• recent comparable sales

The valuer then uses this information to determine an assessed market value for the property.

A lender may choose a full valuation when it needs more information about the property before approving the loan. This can depend on the property's characteristics, the loan amount, the LVR, the location and the lender's own policies.

A full valuation may be particularly useful where the property is unusual or there isn't enough reliable information for a remote assessment.

You generally don't choose the valuation method. The lender decides which type of valuation it needs based on its lending policy, the property and your loan application.

Factors that can influence the decision may include:

• your LVR
• the loan amount
• the type and location of the property
• how much reliable market data is available
• whether the property is standard or unusual
• the purpose of the loan
• the lender's risk assessment

The same property may not necessarily be assessed using the same method by every lender.

Your property valuation can have a direct effect on your refinancing options.

Your loan-to-value ratio (LVR) compares your outstanding loan with the value of your property:

LVR = Loan balance ÷ Property value × 100

For example, if you owe $500,000 and your home is valued at $750,000:

$500,000 ÷ $750,000 × 100 = 66.7% LVR

But if the lender values the same property at $700,000, your LVR becomes:

$500,000 ÷ $700,000 × 100 = 71.4%

The lower valuation has increased your LVR even though your loan balance hasn't changed.

This becomes particularly important if you're refinancing to access equity. Suppose you believe your home is worth $900,000 and owe $500,000. You may calculate your usable equity based on the $900,000 value.

If your lender's valuation comes in at $850,000, the amount of usable equity available to you could be lower. The valuation therefore matters not just because it puts a number on your property, but because it can affect how much you can borrow.

A lower-than-expected valuation can be frustrating, particularly if you have based your refinancing plans on a higher property value.

Your estimate may be based on an online property value, a recent agent appraisal or what similar properties have sold for. The lender's valuation may take a different view based on the available comparable sales and the property's specific characteristics.

Other reasons can include:

• recent changes in the local market
• limited comparable sales
• differences between your property and recent sales
• the property's condition
• unusual features or layout
• improvements that aren't reflected in the available information

It can mean:

• a higher LVR
• less usable equity
• a smaller cash-out amount
• fewer loan options
• potentially higher costs in some circumstances

For example, if you planned to refinance and access $150,000 of equity, a lower valuation could mean you no longer have enough usable equity to access the full amount.

You may be able to ask the lender to review a valuation, depending on its process. If you believe the valuation doesn't reflect your property accurately, you may be able to provide relevant evidence, such as recent comparable sales or details of significant improvements.

However, an independent valuation or your own estimate doesn't automatically replace the lender's valuation. The lender decides what valuation it will rely on for its lending decision.

A bank valuation, real estate agent appraisal and online property estimate can all give you an indication of what a property may be worth, but they serve different purposes.

An agent may believe your home could sell for $900,000, while the lender's valuation could be lower. If you're calculating how much you can borrow or how much equity you can access, the lender's valuation is the number that matters for that loan application.

The valuer looks at the property and available market evidence to determine its value.

Depending on the valuation method, this can include:

• location
• land size
• property type
• size and layout
• condition
• renovations and improvements
• parking
• views and other relevant features
• recent comparable sales

The amount of information available will depend on the type of valuation. A full valuation gives the valuer much more information about the property than an AVM or desktop assessment because they can physically inspect it.

You don't need to try to make your home look like a display property. The more useful approach is to make sure the valuer has access to relevant information.

If you've renovated the kitchen, added a bathroom, built an extension or made other significant improvements, have details available. These improvements may be particularly relevant if the valuation method involves a physical inspection.

If your lender arranges a full or kerbside valuation, make sure the valuer can access the property at the scheduled time.

A tidy home can make an inspection easier, but a valuer isn't simply judging how attractive your home looks. The valuation is based on the property's characteristics and relevant market evidence.

There isn't one standard cost for a property valuation but you can expect to pay between $200 to $500. The exact cost can depend on the type of valuation, the property, its location and the lender's arrangements.

In some cases, the lender may cover the valuation as part of the application. In others, the cost may be passed on to the borrower. If you're refinancing, check whether a valuation fee forms part of the lender's upfront costs before you apply.

The time required depends on the type of valuation and the lender's process.

An AVM can be generated quickly because it doesn't require a person to inspect the property. A desktop valuation can also be completed without arranging an inspection.

A kerbside or full valuation takes longer because a valuer needs to attend the property.

If you're refinancing, allow enough time for the valuation to be completed before assuming your application will proceed.

Using your home equity can give you extra money for a renovation, debt consolidation, an investment or another major expense. But before you take on more debt, check whether your existing home loan is still working hard for you.

A small step, like checking your rate and loan features, could help you save money every day — without borrowing a cent more.

Connect your home loan to Bheja for a Health Check. See where your loan stands today and keep it monitored, so you can spot opportunities to save in the loan you already have.