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What’s the difference between a home appraisal, a market value estimate, and a property valuation?

Mark Bristow avatar
Mark Bristow
- 4 min read
What’s the difference between a home appraisal, a market value estimate, and a property valuation?

In Australian property, terms like home appraisal, property valuation and market value estimate are often used interchangeably. But there’s a big difference between what a property is worth and how much it may sell for, which could make a big difference to your home loan.  

What is a home appraisal?

An appraisal is an estimate of how much a property may sell for at auction or via private sale.

Appraisals are often carried out by real estate agents and similar professionals before preparing a marketing campaign to sell a property.

Appraisals often start with the basic facts about a property – location, age, number of bedrooms, bathrooms, car spaces etc. – and are influenced by both the property’s sale history and any recent sales of similar properties in the local area.

Additionally, real estate agents may include some more personal and emotional factors when appraising a property’s potential sale price. This could include its finish and presentation, natural light levels, and other factors that could encourage a potential buyer to consider paying a little more for the property.

What is a market value estimate?

A market value estimate is a calculation of a property’s approximate worth, based on publicly available information about the property.

You can often order a value estimate for your property for free, with a range of property websites and related services offering property reports.

Value estimates are typically based solely on available data about the property and its local area. This includes the property’s age, size, sale history, number of bedrooms, bathrooms and car spaces. It also accounts for recent sales data for similar properties in the local area.

The value estimates in property reports often include a confidence score. This indicates approximately how accurate you can expect the results to be. If a lot of recent information is available about the property, and several similar properties have recently sold in the local area. It should be relatively simple to calculate the property’s value with a high degree of accuracy and confidence.

But if there’s not a lot of recent or accurate information available about the property, and if there aren’t any recent sales of similar properties in the area to compare it to, it becomes harder to confidently estimate a property’s potential market value.

What is a property valuation?

A property valuation is a formal, legally-binding assessment of a property’s value for the purpose of securing a mortgage.

An important difference between a property valuation and an appraisal is that a formal valuation is NOT an estimate of how much a property may sell for. Banks and mortgage lenders use valuations to help assess their risk when providing home loans. If your Loan to Value Ratio (LVR) is too high after a valuation comes back, you may have to pay for Lender’s Mortgage Insurance (LMI), save a bigger deposit, or seek finance elsewhere.  

Property valuations are carried out by accredited valuers, who are often engaged by banks to provide their services as part of assessing a home loan application.  Because these valuers are licensed professionals, they charge a fee of their services, which the mortgage lender may pass on to the borrower. You may also choose to engage a valuer’s services directly if you’re happy to pay their fee yourself, as this could help give you a comprehensive assessment of your property’s value.

Valuers often start with a desktop valuation, using similar data as what’s used to find a market value estimate e.g. the property’s age, size, sale history, number of bedrooms, bathrooms and car spaces, plus recent sales data for similar properties in the local area. Valuers may also use other data sources that often aren’t available elsewhere.

If there isn’t enough data available for an accurate desktop valuation, a valuer may visit the property in person. A kerbside valuation is where the valuer stays outside the property and assesses the exterior, while a full valuation is where the valuer tours the property room by room.

Keep in mind that valuers aren’t real estate agents, and aren’t looking for features that could potentially impress buyers into paying a higher price. Because professional valuers are legally responsible for the information they provide, their valuations must be based on just the facts about the property. This means that valuations can often err on the conservative side compared to appraisals, which can help banks to minimise their financial risks.

Disclaimer

This article is over two years old, last updated on May 10, 2022. While RateCity makes best efforts to update every important article regularly, the information in this piece may not be as relevant as it once was. Alternatively, please consider checking recent home loans articles.

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This article was reviewed by Personal Finance Editor Alex Ritchie before it was published as part of RateCity's Fact Check process.

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