How do property valuations work?
Last updated: 07 July 2025 | Estimated read time: 3 Minutes
A property valuation is an essential step in your home buying journey. When it comes to buying a house, it’s important that your lender knows how much the property is worth – this enables them to ensure that the value of the property is more than the loan amount you’re wanting to borrow from them.
If you’re looking to refinance, knowing how much equity you have on your current property can help you decide whether to refinance your home loan. The following article provides a quick guide to help you understand how property valuations work.
What is a property valuation?
A valuation of a property (or land) is a professional opinion by a certified valuer of its dollar value for the purposes of a planned transaction, like a sale, or a purchase or to assist with refinancing. Real estate transactions need these valuations because every property is unique, including its current condition, which can be a key factor in setting the value.
What are the different types of valuations?
You can get an estimate of what your property is worth in two ways – through a real estate appraisal (which looks at the current market valuation) or a formal valuation.
Appraisals are usually intended as a guide to pricing. They’re usually given by a real estate agent using information about recent sale prices in the area. Typically, no fee is charged for an appraisal.
A formal valuation on the other hand, gives a more accurate estimate of the property’s value, and is done by a certified Valuer. A formal valuation will consider:
- The location of the property
- The building structure and its condition
- Building/structural faults
- Features of the home
- Caveats or obstructions on the property
- Local Council zoning
- Additional features of the property (particularly relevant in rural areas)
- Recent sales
The cost of a formal valuation varies significantly. Some lenders offer free property valuations as part of a home loan – at Pepper Money we generally include the valuation fee as part of the establishment fee (conditions apply).
The difference between a property valuation and a market valuation
Market value
Property valuation
How to get your property ready for a valuation
Property valuers look at comparable sales and market data to determine the value of your property, however, there are things you can which may help your property stand out. Ensuring your property is in tip top condition is a great start; a lick of paint and replacing any broken appliances or tired fixtures can make a real difference. A well-maintained garden can also do wonders to increase a property's marketability.
While this may not change a bank's valuation, it could increase real estate valuations and your chances of achieving a sale at a higher price.
What can you do if the valuation of your property is too low?
If you believe that valuation of your property is incorrect, first try to understand why. Speaking to your lender or agent could be a good idea to understand this. You can also submit a formal written objection in your state - see the links below:
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Auckland
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Wellington
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Christchurch
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Christchurch City Council Valuations
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Hamilton
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Dunedin
Sometimes you may be faced with a valuation shortfall which means that a valuation is less than the price that has been paid for a property. This may lead to a lender declining to fund a loan for the full amount you have requested, leaving you with a potential shortfall.
Want to find out where you stand? Calculate your Borrowing Power.
Need some help with your home loan?
Whether you’re unsure of the purchase process, wondering what LVR means, or are looking for help along the way, our resources are here to help make sense of all that finance jargon.
You are protected by responsible lending laws. Because of these protections, the recommendations given to you about home loans are not regulated financial advice. This means that duties and requirements imposed on people who give financial advice do not apply to these recommendations. This includes a duty to comply with a code of conduct and a requirement to be licensed.
Applications are subject to credit assessment, eligibility criteria and lending limits. Terms, conditions, fees and charges apply. Information provided is factual information only and is not intended to imply any recommendation about any financial product(s) or constitute tax advice. If you require financial or tax advice you should consult a licensed financial or tax adviser.
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