In short: A lender lends against the lower of the contract price and its own valuation. If a $700,000 purchase is valued at $665,000 and you were approved at 90% LVR, the loan is calculated on $665,000, not $700,000, and you must find about $31,500 more in cash. Your options are to dispute with comparable sales, try another lender, renegotiate the price, or increase the deposit.
A low valuation is not a rejection and it is not personal. It is a risk number produced by a valuer under professional liability, and it can often be moved with evidence. What it cannot be is ignored, because the cash gap has to come from somewhere before settlement.
The three kinds of valuation
Lenders do not order a full inspection on every file. Which type you get depends on the LVR, the property and the lender's system.
| Type | What happens | Typically used when | Reliability |
|---|---|---|---|
| Automated valuation model (AVM) | An algorithm estimates value from sales data, with no human involvement | Low LVR, standard suburban property, refinances | Fast, free, wide error range |
| Desktop valuation | A valuer reviews sales evidence, photos and listing data without visiting | Moderate LVR, mainstream property in a well-traded suburb | Moderate |
| Full valuation (short form) | A valuer physically inspects the property inside and out | High LVR, unusual property, construction, off-the-plan, rural | Highest, and the one that can be disputed with evidence |
An AVM that returns a number the lender is not confident in will simply be escalated to a desktop or a full valuation. That is normal, not a warning sign.
What a valuer actually does
A valuer is not appraising what your home is worth to you, and not forecasting. They are answering a narrow question: what would this property most likely sell for today, in an orderly sale, evidenced by recent comparable transactions?
They select three to five comparable sales, usually settled within the last three to six months, in the same or a very similar location, and adjust for land size, building area, bedrooms, condition, aspect, and any easements or overlays. They then apply a conservative judgement because they carry professional liability to the lender, not to you. If the market has moved up quickly, settled sales lag the market and the valuation lags with it.
Valuers are also instructed to note "risk ratings": high-density location, limited market segment, unusual property type. A property with a high-risk rating can produce a value at the contract price and still cause the lender to reduce the maximum LVR.
Why off-the-plan valuations come in low so often
Off-the-plan is the single biggest source of valuation shortfalls, and the mechanics make it almost predictable.
- You sign a contract today at a price set by the developer, which includes the developer's margin and marketing costs.
- Settlement happens two or three years later, and the lender values the property at completion, not at signing.
- By then, dozens of identical apartments in the same building have settled or resold, and those resales become the comparable evidence. The developer's margin does not survive that comparison.
- If the market has been flat over those two years, the valuation is likely to be below the contract price.
Your loan approval at signing means very little, because approvals expire and the valuation is done at the end. Read buying off the plan before you sign one, and note that some lenders will not touch off-the-plan apartments below a minimum floor area at all. See apartment size and lender restrictions.
The cash consequence, worked
You have a contract at $700,000. You were approved at 90% LVR and budgeted a $70,000 deposit plus costs. The valuation comes back at $665,000.
What you planned
- Loan: 90% × $700,000 = $630,000
- Deposit: $700,000 − $630,000 = $70,000
What the lender will actually do
- The lender lends against the lower of price and valuation: $665,000
- Loan: 90% × $665,000 = $598,500
- Deposit required: $700,000 − $598,500 = $101,500
- Extra cash needed: $630,000 − $598,500 = $31,500
Note that you still pay $700,000. The contract price does not fall because the valuation did. The whole $35,000 valuation gap does not become your problem; 90% of it does, because you were only borrowing 90% of it. That is the general rule: your extra cash equals the valuation shortfall multiplied by your LVR.
| LVR approved | Loan on $700,000 | Loan on $665,000 | Extra cash needed |
|---|---|---|---|
| 95% | $665,000 | $631,750 | $33,250 |
| 90% | $630,000 | $598,500 | $31,500 |
| 80% | $560,000 | $532,000 | $28,000 |
| 60% | $420,000 | $399,000 | $21,000 |
There is a second effect. If the valuation pushes you above 80% LVR when you were previously below it, lenders mortgage insurance appears where you had budgeted none. Check the LVR against the valuation, not the price, in the LVR calculator, and price the premium in the LMI calculator.
Your five options
1. Dispute the valuation with evidence
This works more often than people expect, but only with genuine evidence. Submit three to five settled comparable sales, not listings, from the last three to six months, in the same street or immediate area, with similar land size and building area. Note anything the valuer may have missed: a completed renovation, a second bathroom, a north-facing rear yard, a subdividable block. Send it through your broker to the lender, which sends it to the valuation firm. Expect a written response, not a phone conversation.
Disputes fail when the "evidence" is asking prices, sales from a better street, or the buyer's opinion of value. They succeed when the valuer genuinely used a weaker comparable and a better one exists.
2. Get a second valuation with a different lender
Different lenders use different valuation panels, and different valuers reach different numbers on the same property. A variance of 3% to 5% between two valuers on the same house is routine. This is often the fastest fix. It costs you a new application, and if there is a finance clause, it costs time.
3. Renegotiate the price
If the valuation says $665,000 and the market agrees, you have leverage, particularly on a private sale where the property has been listed a while. A copy of the valuation is usually not released to you, but you can share the outcome. At auction you have no cooling-off and no finance condition, so this option generally does not exist.
4. Increase your deposit
Find the $31,500 from savings, a gift with a statutory declaration, or a family guarantee over a parent's property. See buying with a guarantor. Gifts need a paper trail and lenders will ask about the source.
5. Accept a higher LVR and pay LMI
Borrowing 95% of $665,000 instead of 90% closes most of the gap, at the cost of an insurance premium and a higher repayment. On $631,750 for illustration at 6.00% p.a. over 30 years, the repayment is about $3,788 a month.
Protecting yourself before it happens
- Keep a finance clause on private sales and make it realistic on timing. Read subject to finance clauses and what happens if finance falls through.
- Order an upfront valuation before you bid where the lender allows it. Many will run one on a nominated property during pre-approval. See home loan pre-approval.
- Budget a buffer of 5% of the price above your minimum deposit, especially on off-the-plan or unusual properties.
- Be careful at auction. No cooling-off, no finance clause. If the valuation disappoints, the shortfall is yours.
Frequently asked questions
Can I see the bank's valuation report?
Usually not. The valuation is commissioned by the lender for its own risk purposes and the valuer's duty of care runs to the lender. Some lenders will release a summary or tell your broker the figure and the key comments. You can always commission your own independent valuation, but a lender will not lend against it.
How much does a low valuation cost me?
Roughly the shortfall multiplied by your LVR. A $35,000 shortfall at 90% LVR costs about $31,500 in extra cash; at 80% LVR it costs $28,000. If the shortfall also pushes you above 80% LVR, add the lenders mortgage insurance premium you had not budgeted for.
Can I dispute a bank valuation and win?
Yes, sometimes. Disputes succeed when you provide settled comparable sales the valuer did not use, or point out a feature they missed, such as a completed renovation or extra land. They fail when the evidence is asking prices or sales from a superior location. Submit it in writing through your broker and expect a written outcome.
Why did my off-the-plan apartment value below the contract price?
Because the lender values it at completion, two or three years after you signed, using resales of identical apartments in the same building as evidence. Those resales exclude the developer's margin and marketing cost that were built into your price. If the market has been flat since you signed, a shortfall is close to expected.
Does a low valuation mean the loan is declined?
No. It means the loan amount is recalculated on a lower property value. If you can cover the gap in cash, or accept a higher LVR with lenders mortgage insurance, the loan proceeds. The decline risk comes later, when the larger deposit or higher repayment does not fit your position.
Talk to GNT Finance
A valuation shortfall is a deadline problem as much as a money problem, and the first 48 hours matter. We know which lenders order upfront valuations, which panels tend to be conservative in which suburbs, and how to put a dispute together that a valuation firm will actually read. There is no cost to you for our home-loan service in most cases.
Book a free consultation or call 0426 403 703.
Written by Gorakh Timilsina
Founder, CEO & Senior Mortgage Consultant at GNT Finance. Gorakh started as a broker assistant, spent years as a senior credit officer assessing loan applications, and now helps Melbourne families get the right loan approved. English, Nepali and Hindi spoken.