Valuation and Appraisal: Ensuring Fair Property Pricing

A valuation is the lender’s independent assessment of the property’s market value. The lender orders the valuation to confirm the property is worth at least the loan amount; if it’s not, the lender reduces the loan or declines the application.

Valuers are licensed professionals who inspect the property, assess its condition, compare it to recent sales of similar properties (“comps”), and assign a market value. Most valuations take 7–10 business days from order to completion.

The cost is typically borne by the borrower, usually $300–$600 for a residential property. If you have multiple lenders competing for your business, you might negotiate one lender covering the valuation cost.

Valuation shortfall is when the property’s valued amount is less than the purchase price. You agreed to buy for $700,000; the valuation comes in at $680,000. The lender will only lend based on $680,000 value, leaving a $20,000 gap. You must either inject $20,000 more equity (increasing your deposit) or renegotiate the purchase price with the seller.

Valuation disputes are common. If you disagree with a low valuation, you can request a revaluation (sometimes for a fee, sometimes free if the lender agrees the first valuation was flawed). However, revaluations rarely change the outcome significantly; valuers use similar methods and usually arrive at similar conclusions.

A second valuation (from a different valuer) is another option, but lenders often won’t accept a second valuation if the first was low; they’ll average the two or take the lower, which doesn’t help.

The valuation market can be soft or firm. In a strong market where properties are selling above asking, valuations often align with purchase prices. In a soft market where properties are selling slowly, valuations come in below prices, creating shortfalls.

Valuation is not an appraisal for purchase advice. A low valuation doesn’t mean the property is a bad investment; it means the lender sees it as worth less than the purchase price. The valuation reflects lending risk, not investment merit.

Properties in transition zones, with mixed-use neighbourhoods, or undergoing gentrification often have valuation challenges. A property in an improving area might be priced based on future potential (high purchase price) but valued conservatively (lower valuation) because comparable sales don’t yet reflect the future value.

Condition issues affect valuation. A property needing significant repairs (roof replacement, foundation work) is valued below asking because the value is reduced by remediation costs. You might negotiate with the seller to reduce the price to match the valuation, or the lender might require repair estimates before approving the loan.

Valuation appeals are rare but possible. If the valuation is genuinely flawed (appraiser missed major value factors or made calculation errors), you can appeal through the lender’s valuation review process. However, success rates are low unless the valuation is clearly wrong.

Smart buyers order a pre-purchase inspection before making an offer. If the inspection reveals issues (roof damage, asbestos, structural cracks), you can negotiate price downward, reducing the risk of valuation shortfall. A good inspection costs $500–$1,000 and can save thousands in valuation disputes.

Disclaimer: This article provides general information only and should not be taken as financial or legal advice. Valuations, appraisals, and valuation dispute processes vary by lender. Consult your broker if you face a valuation shortfall.