Your guide to mortgage valuations

Your offer has been accepted, and you're well on the way to getting the keys to your new home. Exciting times ahead! But before you sign on the dotted line, your lender will conduct a mortgage valuation to check what the property is worth and that it provides adequate security for the loan. It is purely for their benefit to assess risk exposure and is not the same as a full house survey.

Banks and building societies conduct valuations in any of the following ways:

AVM (Automated Valuation Model): This is a valuation without a physical inspection. An AVM is a computer-driven mathematical model that uses vast amounts of data (such as property records and property listings), advanced analytics and algorithms to predict a property's current or future value. It is completely automated with little or no human intervention.

Desktop Valuation:  As the name suggests, this type of valuation can be done from a desk and does not involve a site visit. Instead, the valuer will rely on comparable property valuation data, photographs, geographical location and other factors.

Drive-By/External Valuation: With this light-touch physical valuation, a valuer will drive by the property in question to check on its external condition. Essentially an estimate is derived by looking at the property from the roadside. Actually, it involves a little more than just cruising by the curb. The valuer will park up and take and take pictures of the front, back and sides of the home.

After the drive-by, the appraiser will review publicly available information about comparable property sales in the neighbourhood. Although a drive-by valuation can give a reasonably accurate figure, it is not as thorough as an internal appraisal.

Internal Valuation: During this comprehensive process, the valuer will measure the size of the building and take note of the property's age, condition and number and type of rooms. They will also pay attention to any unique characteristics that could affect the home's value.

While primarily for the lender's purposes, a mortgage valuation can also give you a good idea of whether you will be paying too much or too little for your new home.

October 2020