Most homeowners would consider their property to have one current price, but the fact is there are different values placed on homes depending on who is doing the valuing.
Understanding the Different Types of Property Valuations
Dwellings primarily have two main “values” at any one time, one being its bank valuation, the other being its market valuation.
There are also other valuations, such as the value the local council thinks a property is worth when issuing their rates notices. The different property valuations aim to pinpoint the amount of money a property would attract in a sale relevant to the stakeholder interested in knowing what the property can fetch.
Property valuations can be essential for sellers, buyers, real estate agents, borrowers, lenders, councils, and even the Australian Taxation Office, which will want to know how much capital gains tax to bill people who sell.
Fundamentally, however, properties have two key valuations: a conservative bank valuation and a higher, more emotion-based market valuation.
Bank Valuations
“A large portion of the population, the Baby Boomers, are reaching retirement age, and they have a lot of their wealth tied up in their homes,” Money Links managing director Brenden Lowbridge told Australian Broker.
“They need to unlock that equity.”
A reverse mortgage can provide older borrowers with funds without them having to take out a lower-interest short-term loan that requires repayments.
The government’s own reverse mortgage scheme (HEAS) had more than 12,000 participants at the start of 2024, and commercial lenders are also reporting strong increases in demand.
Senior credit adviser at Flint brokerage Andrew Dihm summed it up perfectly when he spoke to Australian Broker:
“People are living longer and have exhausted their superannuation fund and have no income, but they’re sitting on this house that’s worth millions of dollars.”
Benefits of Reverse Mortgages
With the younger generations struggling to get their foot in the door of the property market, reverse mortgages are also giving older Australians the opportunity to provide funds to them for a home deposit of their own.
The government’s HEAS is well-suited to smaller loans, but customers looking to borrow larger amounts are best suited to commercial reverse mortgages from smaller lenders that have fewer restrictions.
Interest rates on these commercial reverse mortgages are higher, but borrowers are not required to repay the loan until they either sell up or pass away.
Market Valuations
Market valuations differ in that they use recent similar property sales to estimate the highest possible price a buyer in the current market would be willing to pay and the vendor would be willing to sell for.
Buyers and sellers use market valuations as a starting point for their negotiations over the sale of a property. These involve more subjectivity and emotion than the cold, hard facts of a black-and-white bank valuation, which invariably results in a higher figure.
Sellers and buyers are free to appoint their own qualified property valuers to provide market valuations.
