Knowing a property’s true worth isn’t just for sellers. Whether you’re a first home buyer, seasoned investor, or an owner-occupier, understanding how the market value of a property is calculated can help you buy smarter, negotiate better, and plan with confidence.
Let’s break down how property value is calculated in Australia, why different valuations can vary, and how Aussie’s tools and expert brokers can help you make informed decisions.
What is market value in real estate?
In simple terms, market value is what a property would likely sell for in current conditions, if both buyer and seller are acting willingly and without pressure.
Market value is not:
The current asking price
What the owner hopes to get
The price it last sold for
It’s an independent estimate based on valuation methods, comparable sales, and property-specific details. But here’s the catch: value can vary depending on who’s doing the valuing.
Who typically conducts a property valuation?
Not all valuations are created equal. Here’s a breakdown of who does what and why their numbers might differ:
Licensed valuers: Conduct formal, independent valuations often used by banks. These are thorough and regulated.
Banks/lenders: Use valuation firms or internal assessments. Their numbers tend to be more conservative to minimise risk when issuing loans.
Real estate agents: Provide appraisals, not formal valuations. These can be optimistic, especially when trying to win a listing.
Automated valuation models (AVMs): Online tools (like the one behind Aussie's Property Reports) that estimate property value based on available market data. Useful for ballpark figures, but not suitable for formal loan assessments.
How is property value calculated?
There are three common valuation methods used in Australia, depending on the property and purpose.
1. Comparable sales approach (residential)
This is the most common method for houses and units. It compares your property to recently sold homes nearby, ideally within 1km and in the last six months.
Valuers look at:
Location, street appeal, nearby amenities
Size of the land and dwelling
Number of bedrooms and bathrooms
Age, condition and quality of the build
Renovations or upgrades
Outlook, orientation and zoning
Aussie’s Free Property Report shows suburb trends, comparable sales, and estimated value ranges based on these criteria.
2. Income capitalisation approach (investment)
Used for investment properties and commercial buildings, this method values a property based on the rental income it generates.
Formula:
Value = Net Rental Income ÷ Capitalisation Rate (cap rate)
This helps investors gauge return potential and compare properties across different suburbs or regions.
3. Cost approach (specialist or new builds)
This method estimates how much it would cost to rebuild the property today, subtracting depreciation and adding land value.
It’s often used when comparable sales don’t exist, like with brand new homes or unique builds.
Why does the bank’s valuation differ from the agent’s valuation?
It’s a common scenario: your real estate agent tells you the property is worth $1.2M, but the bank’s valuer puts it closer to $1.05M.
Why the difference?
Banks factor in risk: They focus on how easily the property can sell if the loan defaults.
Agents factor in ambition: They may aim high to attract sellers or generate buzz.
Market conditions: A bank's valuation reflects today’s conditions, often more cautiously than agents or AVMs.
This matters because your Loan-to-Value Ratio (LVR) and how much you can borrow depend on the bank’s figure, not the market hype.
Property valuations and refinancing
When refinancing, your lender will typically order a new valuation to determine how much equity you have in your home.
Equity = Property value – Outstanding loan amount
A higher valuation can give you access to better rates, more borrowing options, or unlock equity for renovations or investments.
A lower valuation may mean a higher LVR and potentially trigger Lenders Mortgage Insurance (LMI).
Tip: Aussie Brokers help you prepare for this process by reviewing comparable sales, identifying risks, and ensuring your refinance application is based on realistic expectations.
Valuations expire, here’s why that matters
Valuations aren’t permanent. In a shifting market, property values can move quickly, especially during times of rate hikes, economic change or fluctuating demand.
Most banks consider valuations valid for 90 to 180 days
If your loan or refinance is delayed beyond this window, a new valuation may be required
Buyers and investors should check how fresh their valuation is before relying on it
What influences property value?
Here are the key factors that can lift or lower a property’s market value:
Location | Proximity to shops, schools, jobs, transport Desirability of the street or suburb Planned developments or infrastructure projects |
Interest rates | Higher rates lower borrowing capacity, reducing demand Lower rates can drive up buyer competition and prices |
Economic conditions | Employment rates, wage growth, inflation and consumer sentiment all shape buyer confidence |
Supply and demand | Fewer homes on the market = price increases High supply = more competition and possible price drops |
Government policies | First home buyer grants and stamp duty concessions boost buying power Zoning laws and infrastructure changes can impact long-term value |
Can I get a reliable property valuation online?
Online tools like Aussie’s Property Reports use Automated Valuation Models (AVMs) to crunch recent sales and suburb trends. They’re great for:
Quick estimates
Suburb-level comparisons
Getting a value range before speaking with your broker or lender
But for loan applications or legal purposes, only a formal valuation by a licensed valuer counts.
Mistakes to avoid when estimating property value
1. Getting emotional
If you’ve lived there for years or fallen in love with a place, it’s easy to overvalue. Lean on data, not feelings.
2. Using the wrong comparisons
Stick to similar property types in the same area. A four-bedroom home in one suburb isn’t equal to a unit in another.
3. Relying on outdated information
Last year’s value may not reflect today’s reality. Make sure your data is recent, ideally within the last three months.
FAQs about property valuations
Your next move starts here with Aussie
Whether you’re working out what to offer, checking your refinance options, or just wanting to know what your home’s worth, Aussie makes it easier.
With us, you get:
Free property reports and suburb insights
Borrowing power and equity tracking tools
A broker in your corner for every step of the journey