Why the Bank Thinks Your Property Is Worth Less (And What You Can Do About It)

You might expect the bank’s valuation of your property to match recent sales or local demand—but often, the number comes in lower than you anticipated. It can be frustrating, especially if you’re looking to refinance or fund your next investment.

The reason is simple: bank valuations and market values are not the same. While buyers focus on opportunity and emotion, lenders are focused on risk and recoverability.

Understanding how valuations work—and why banks use a different lens—can help you make smarter decisions around lending, equity, and long-term strategy.

What is a Bank Valuation?

A bank valuation is the amount a lender believes your property is worth when used as loan security. It’s conducted by an independent valuer and is based on conservative, risk-adjusted criteria.

Why banks value properties this way:

• Risk protection – Banks assess what they could reasonably recover if they had to sell quickly.

• Objective methods – Valuations rely on recent comparable sales and formulas, not market sentiment.

• Lending decisions – The outcome determines how much the bank is willing to lend and under what terms.

Key takeaway: A bank valuation is risk-focused, not market-driven—it’s there to protect the lender, not reflect the highest possible sale price.

What is Market Value?

Market value reflects what a buyer is willing to pay in the current market. It’s influenced by lifestyle factors, supply and demand, emotional drivers, and competition.

What drives market value higher:

• Buyer competition – High demand can push prices above what a bank would consider ‘safe’.

• Emotional appeal – Buyers may pay more for a home they love or a suburb they value highly.

• Future potential – Agents and buyers often factor in upcoming infrastructure or future growth potential.

Key takeaway: Market value reflects buyer sentiment—bank valuations don’t.

Why Do Bank Valuations Come in Lower?

It’s common for bank valuations to fall short of market expectations, particularly in rising markets. Here’s why that happens:

• Conservative assumptions – Lenders prefer to understate rather than overstate value.

• No emotional premiums – Buyers may offer more due to lifestyle appeal or urgency—valuers don’t account for this.

• Different data – Banks may rely on older sales data or automated models that lag behind fast-moving markets.

• Short-term focus – Valuations are based on current risk, not potential future value.

Example: A buyer might offer $800,000, but the bank values the property at $750,000—meaning you’ll need to fund the $50,000 gap or reduce your borrowing.

How Does a Low Bank Valuation Impact Investors?

If a valuation comes in lower than expected, the implications can affect both your short-term plans and your ability to scale over time.

• Reduced borrowing power – You may need a larger deposit or receive a lower loan amount.

• Refinancing limitations – Unlocking equity for your next investment becomes harder.

• LVR challenges – A lower valuation can increase your loan-to-value ratio, triggering LMI or tighter lending conditions.

Tip: Always have a buffer in your strategy to absorb valuation shortfalls—especially when using equity to expand your portfolio.

Can You Do Anything If a Valuation Comes in Too Low?

Yes—while you can’t control the outcome, you can take steps to challenge or work around a low valuation.

• Get a second opinion – Different lenders often use different valuers.

• Provide your own data – Submit recent comparable sales that may support a higher value.

• Improve the property – Even small cosmetic upgrades can influence the result.

• Switch lenders if needed – Some are more conservative than others.

• Structure loans carefully – A mortgage broker can help structure your lending to maximise available equity.

Tip: Working with professionals who understand the valuation process can improve your chances of getting a favourable result—especially if your strategy depends on refinancing or leveraging equity.

Bringing it all together

Bank valuations don’t always align with market sentiment, but they play a critical role in your investment journey. By understanding how they work—and planning accordingly—you can navigate valuation surprises without derailing your goals.