Do I need a home appraisal for a refinance?

Refinancing your home may allow you to save money on your mortgage repayments, pay off your property faster, or access the equity in your home to use elsewhere. But before you start the refinancing process, it may be worth looking into a home appraisal, followed by a formal valuation, to help check if refinancing is the best decision for your needs.

What is a home appraisal? 

An appraisal is an informal estimate of how much a piece of real estate may sell for at auction or via private sale. While an appraisal can serve as a useful guideline of a property’s potential price, it is not the same as a formal valuation.

There are a few different ways to get an appraisal:

• Real estate agents may appraise a property before starting a marketing campaign to sell, to help the vendor set an asking price and/or an auction reserve.
  
  
• A mortgage broker may appraise a property that a client is considering buying, to help them get a better idea of how much to offer, and whether the property is suitable for a preapproved mortgage.
  
  
• An online property report may include an appraisal, along with the property’s age and sale history.
  
  

A property appraisal is often based on the age and condition of a property, along with its size, number of amenities (e.g. bedrooms, bathrooms, car spaces), and location, including access to schools, shops and public transport. Recent sales of similar properties in the local area may also affect a property’s appraisal. A real estate agent may also factor in other qualities, such as access to light, local noise levels, and other factors that could affect the property’s value in the eyes of potential buyers.

What is a home valuation? 

A property valuation is a formal, legal process conducted by a Certified Practicing Valuer (CPV), often on behalf of a bank of mortgage lender. Rather than estimating a likely sale price, a valuer will assess the property’s overall value for the purpose of securing a mortgage.

Banks and mortgage lenders typically require a valuation before they’ll offer final approval on a home loan, to ensure the property fulfils the mortgage’s Loan to Value Ratio (LVR) requirement. If a valuations comes back short, your LVR may be too high for the lender to accept, meaning you may have to pay Lender’s Mortgage Insurance (LMI) or look into other financing options.

A valuer may conduct a desktop valuation from their office if there’s aplenty of data available about your property, its sale history, and recent sales of similar properties in the local area. If less information is available, they may choose to conduct a kerbside valuation, where the valuer visits the property and assesses its condition from the street. If there’s very little information available to conduct an accurate valuation, a valuer may visit the property for an inspection and an in-person valuation.

Do I need an appraisal or a valuation for refinancing? 

When you refinance your home loan, you’re essentially trading in one mortgage for another. This means going through many of the same steps as you did when you first applied for your home loan, including getting a valuation to confirm that the property can fulfil its LVR requirements. This may be especially important if you’re looking to access your home’s equity, as this will be affected by your property’s current value. Depending on your lender, you may be charged a valuation fee to cover the valuer’s costs.

Before applying to refinance, you may also want to consider getting an appraisal, whether from an agent, a broker, or an online property report. This is often a free service (though you may be able to access more information for a fee from some services in some cases), which can give you an approximate idea of how your property’s value has changed since you first purchased it. This may help you work out if refinancing may be the best option to suit your current financial situation.

Keep in mind that the results of a property appraisal may not match your property valuation. This is because an appraisal tells you how much a buyer may be willing to pay for a property, while a valuation calculates the property’s value on paper for the purpose of legally securing a home loan, so the valuation may be more conservative than the appraisal.

You also have the options to engage a CPV to conduct your own independent property valuation before applying to refinance. This may give you a more accurate idea of the value a bank or mortgage lender may attach to your property, and give you a more clear idea of whether refinancing may be the best step to take. Of course, you’ll also need to pay a fee for this service.

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