19 May 2021

Bank Valuation vs Market Value - What's The Difference?

Written by Tuan Duong
Founder & Director

The bank valuation vs market value subject is often very confusing for property buyers. 

Did you know that there are two different types of valuations that could determine the value of your property? 

But what’s the difference? How can a property have two different values?

Understanding the difference between a bank valuation and market valuation when it comes to your property is vital - especially if you want to utilise some of its equity or put it on the market. 

So, here’s what you need to know about bank valuations and market valuations. 

What Are Property Valuations?

Before delving into the difference between a bank valuation and a market valuation, it’s worth having a foundational understanding of property valuations in general and when you might need one. 

A property valuation establishes the approximate value that the market proposes your property is worth and how much it could sell for in an arm’s length transaction (“Arm’s length transaction” simply means that the transaction occurs between two parties who don’t know each other. ) 

So, essentially, property valuations involve calculating the amount you could get on the property sale. 

What Else Would You Need a Property Valuation For?

There are various reasons you could need a property valuation - not just to calculate the selling price of your home. 

For example, a capital gains tax property valuation is required by the Australian Tax Office (ATO) to calculate the capital gain you may have made on the sale of your investment property. 

This article will specifically focus on two methods for determining the value of a property. 

The first is to use the bank valuation, where you get your home loan, and the lender will estimate what your home should be worth to qualify for the loan. 

The second method is market value, which uses comparable properties in your area that have recently sold or are currently on the market.

Understanding A Bank Valuation

The most common reason for obtaining a bank valuation would be when a bank or lender has requested one in the process of obtaining a home loan. 

A lender typically uses a bank valuation to set a value for the property you’re buying. Setting a value for the property allows them to assess how much they are willing to lend you. 

This helps the lender ensure that they can recover the home buyers’ debt if they default on their loan. So, essentially a bank valuation forms part of their risk assessment.

The lender will appoint an objective property valuer who will assess the physical property and a few comparable sales to calculate a value they regard as a reasonable selling price.

The bank value is typically conservative - meaning that it’s often on the lower end of the value spectrum. 

This is because a lender is only looking to find the value they can recover if the buyer defaults and they repossess the property and sell it quickly. 

So, with a bank valuation, it’s all about the numbers. 

What Do Bank Valuers Take Into Account During Their Assessment?

Bank property valuers typically only take the following information into account when finalising the value: 

  • the condition of the building’s structure; 
  • building faults; 
  • upgrades and renovations; 
  • the location in which the property is situated; and 
  • local government zoning. 

So, Then What Is the Market Value?

The market value of a property, on the other hand, is the highest price that the buyer would be willing to pay and the seller would be willing to accept. 

In other words, a market valuation is used to gauge the fair market price of your property and establish a reasonable selling price in an open and competitive property market. 

Whereas bank valuations consider physical aspects of the property to consider the minimum amount the lender could recover on a defaulted sale, a market valuation uses data obtained from the sale of similar properties in the area (and nearby areas) at a specific time to establish a reasonable value. 

The home buyer and seller can use that market value as a foundation to then negotiate a price they’re willing to accept. 

Because the selling price typically involves negotiation between the parties, there’s much more subjectivity and emotion attached to a market valuation than a bank valuation which simply takes into account cold hard facts. 

This is also why a market valuation is known to be higher than a bank valuation - because it’s all about what the seller wishes to get on the sale and what the home buyers are willing to pay. 

Bank Valuation vs Market Valuation

Here’s a breakdown of the significant differences between a bank valuation and market valuation: 

Bank ValuationsMarket Valuations 
Used by a home loan lender Used by the seller and potential home buyer
Only looking for the resale value - i.e. what the lender can quickly recover if the borrower defaultsLooks at a market assessment to establish an average price that the buyer and seller can negotiate - i.e. takes sales data of similar properties into account to work out the property’s potential value on the real estate market
Objective property valuer appointed by the bank or lenderConducted by a qualified and licensed property valuer of your choice
Conservative value - bank valuations are usually on the lower end of the value spectrumA market valuation is typically higher than a bank valuation
All about the numbers - takes into account the physical assessment of the home and a few comparable sales More subjective and emotion-based because it involves negotiation between the buyer and seller

How To Get a Market Valuation?

While it is possible to obtain a market value appraisal from a real estate agent, it’s usually a general estimation and is not legally enforceable. 

Only officially and legally recognised qualified valuers can offer market valuations. A real estate agent can only offer an appraisal. 

At Duo Tax, we’ve assembled a team of property valuers who have been certified as practising valuers through the Australian Property Institute.

So, we can provide you with an accurate and fair market valuation of the home you wish to sell or are currently interested in buying. 

Key Takeaways

Bank valuation and market valuations are two very different things. 

A bank will typically use a conservative estimate of the value of your home, whereas a property valuer or can provide you with an estimated market value (or purchase price) that more accurately reflects what home buyers would pay for it in today's marketplace.

Banks will typically appoint an objective property valuer to conduct the bank valuation on their behalf. However, if you want to get your hands on a market valuation report, you’ll need to engage the services of an expert property valuer. 

At Duo Tax, we offer a full range of property valuation services across Australia so that we can deliver reliable and affordable valuation reports for your property.

Get in touch with our team of certified property valuers today so we can help answer any questions you might have about this process and get started on finding out just how valuable your home really could be!

Disclaimer: Please note that every effort has been made to ensure that the information provided in this guide is accurate. You should note, however, that the information is intended as a guide only, providing an overview of general information available to property investors. This guide is not intended to be an exhaustive source of information and should not be seen to constitute legal or tax advice. You should, where necessary, seek a second professional opinion for any legal or tax issues raised in your investing affairs.
Tuan Duong is an award winning Quantity Surveyor and leads Duo Tax Quantity Surveyors – Australia’s fastest growing provider of Tax Depreciation. Reach out to him directly on 0431 154 356 or email tuan@duotax.com.au
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