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Kooky
Builder of Shaka, the payment router that pays every agent their commission on closing date.
About Kooky and Shaka →A buyer agrees to pay $900,000 for a house. The bank sends a valuer, and the valuer says $850,000. Nothing about the house has changed, and the contract price has not changed either, but the buyer's loan has.
In a rising market this is rare enough that few buyers think about it. In a falling one it becomes common. Cotality's index showed Brisbane dwelling values down 1.5 per cent in September and 5.4 per cent below their peak of May, which means a price agreed on the strength of sales from the autumn may sit above what a valuer can support today. This guide explains what a lender's valuation is for, how a shortfall is measured, what it does to the loan and the deposit, where the Queensland contract's finance clause fits, and the options open to a buyer. It describes how these things generally work. A lender's own policy and the terms of the buyer's contract decide any particular case.
Illustrative figures: a $900,000 purchase with a $720,000 loan and a lender's valuation of $850,000. Not market data.
What a lender's valuation is for
A lender's valuation is not an opinion on whether the buyer paid too much. It is a risk assessment for the lender. The property is the security for the loan, and the lender wants to know what it could be sold for if the borrower stopped paying.
That purpose explains two things buyers find frustrating. The valuation belongs to the lender, which orders it and relies on it, and the buyer may see only the figure. And a valuer working for a lender has no reason to be optimistic. The figure has to be supported by sales that have already happened, not by what the next buyer might pay.
Related readGreat Southern Bank grows home loans 7.6% with first buyers in frontIt also explains why the contract price does not settle the matter. One buyer's willingness to pay $900,000 is a piece of evidence about value, and a strong one when a property has been openly marketed. It is not the only evidence, and a valuer who finds that comparable homes have been selling for less will say so.
How the figure is produced
Not every valuation involves a person walking through the house. The mortgage broker Hunter Galloway, a Brisbane firm whose guide to the subject was updated on 30 September 2026, lists the main methods, and notes that the Australian Prudential Regulation Authority's guide for residential mortgage lending recognises each of them.
| Method | How it is done | What it can miss |
|---|---|---|
| Automated model | A data model estimates value. No person sees the property. | Renovations, unusual layouts, errors in the property record. |
| Desktop | A valuer reviews records and sales without visiting. | Condition and anything not on the record. |
| Kerbside | The property is viewed from the street. | The interior and improvements out of sight. |
| Full inspection | A valuer inspects inside and out and writes a report. | Least likely to miss physical features. |
Source: Hunter Galloway, guide updated 30 September 2026, citing APRA's Prudential Practice Guide APG 223.
Which method is used depends on the lender and on the risk of the loan. A small loan against a standard house in a suburb with many sales may be approved on a model's estimate. A large loan, a high loan-to-value ratio or an unusual property is more likely to bring a full inspection.
For a full valuation the valuer needs to get in. The standard Queensland sale contract allows for it: among the buyer's rights of access before settlement, after reasonable notice to the seller, is one entry to value the property.
Two lenders can reach different figures for the same house. They may use different valuation firms, different methods and different instructions. Hunter Galloway gives an example from its own files: a couple who offered $900,000 for a three-bedroom home on Brisbane's north side in January 2022 received valuations of $790,000 from one bank, $800,000 from a second and $900,000 from a third.
Related readPre-approval explained: what a conditional approval is and is notWhy a valuation comes in low
The reasons fall into three groups.
The first is the market. A valuer relies on settled sales, which by their nature are weeks or months old. When prices are rising, that lag makes valuations conservative. When prices are falling, a valuer who sees the direction may give less weight to the highest of the recent sales. In Brisbane, where Cotality's index put values 4.7 per cent lower over the three months to September, a contract price that matched the sales of the winter can now sit above what the most recent evidence supports.
The second is the property. Records may be wrong about land size, bedrooms or the year of construction. Renovations may not appear in any database. A desktop or automated valuation will not know that the kitchen is new.
The third is the price itself. A buyer may simply have paid more than others would, because the house suited them, because two bidders pushed each other, or because the comparable sales were thin. A valuation that reflects this is not an error.
How the shortfall is measured
Lenders measure their exposure by the loan-to-value ratio, or LVR: the loan divided by the value of the property. The value used is generally the lower of the contract price and the valuation. When the valuation is below the price, the ratio is worked out on the valuation.
A worked example shows the effect. A buyer agrees to pay $900,000 and has a deposit of $180,000, which is 20 per cent of the price. The loan sought is $720,000. On the price, the LVR is 80 per cent.
Related readHow lenders work out borrowing capacity: income, expenses, bufferThe lender's valuation is $850,000, a gap of $50,000. The same $720,000 loan is now measured against $850,000, and the LVR is 84.7 per cent.
Illustrative figures. The loan stays at $720,000 and only the valuation changes.
The price the buyer owes the seller is still $900,000. The valuation changes what the bank will lend, not what the contract says.
What the gap does to the loan
Crossing 80 per cent matters because of lenders mortgage insurance. Lenders generally require it on loans above an 80 per cent LVR. It protects the lender, not the borrower, and the borrower pays the premium, usually by adding it to the loan.
In the worked example the buyer who planned to avoid that insurance has three paths.
To keep the loan at 80 per cent of the lender's value, the loan must fall to $680,000, which is 80 per cent of $850,000. The price has not moved, so the buyer must find the difference: $40,000 in extra cash, on top of the $180,000 deposit and the costs of buying.
To keep the loan at $720,000, the buyer accepts an LVR of 84.7 per cent and, if the lender will lend at that level, pays for mortgage insurance. The lender will reassess the application on those terms, and its interest rate for the loan may differ.
Or the loan no longer fits the lender's policy at all, and the approval is not given.
The arithmetic is harsher for a buyer who was already borrowing above 80 per cent. A buyer with a 10 per cent deposit on the same house was seeking $810,000, or 90 per cent of the price. Against a valuation of $850,000 that loan is 95.3 per cent, and many lenders will not go that high.
Related readLenders trim variable rates days before the June Reserve Bank meetingOne trap in the sums is counting the same money twice. Hunter Galloway's guide warns buyers to keep the cash needed to close the valuation gap separate from the cash already set aside for transfer duty, legal fees and adjustments at settlement. A buyer who uses the duty money to cover the shortfall still owes the duty.
A low valuation does not reduce the price
The buyer's promise to the seller is the contract price. The seller is not bound by the bank's opinion and has no duty to renegotiate because of it. Whether the buyer can leave the contract depends on its conditions, not on the valuation.
Where the finance clause comes in
What a buyer can do about a shortfall depends heavily on whether the contract is still conditional.
The standard Queensland residential contract is subject to finance only if the reference schedule is filled in with a loan amount, a financier and a finance date. Where it is, the buyer must take all reasonable steps to obtain approval, and by 5pm on the finance date must give notice either that approval has not been obtained, which ends the contract, or that the condition is satisfied or waived. The approval the clause speaks of is approval of a loan for the stated amount, from the stated financier, on terms satisfactory to the buyer.
A valuation shortfall that arrives before the finance date usually shows up as one of two things: no approval, or approval for a smaller loan or on different terms. In the first case the condition has not been met. In the second, whether the buyer may rely on the clause turns on its wording and on the facts, including whether the buyer acted reasonably in seeking the loan, and that is a question for the buyer's solicitor before any notice is given. A buyer who ends a contract without the right to do so is in breach and puts the deposit at risk.
Related readWho passed on the rate rise, and when: BOQ first, big four on 9 OctoberThe position is very different once that date has passed, or where there was never a finance condition.
A buyer who has given notice that finance is approved has an unconditional contract. If the lender later reduces or withdraws the loan because a valuation ordered late has come in low, the buyer must still settle. This is the reason brokers urge buyers to confirm that the valuation has been done, and accepted by the lender, before the finance condition is declared satisfied. An approval described as subject to valuation is not yet the approval the buyer needs.
A buyer at auction has no finance clause at all. A sale under the hammer in Queensland is unconditional, with no cooling-off period, so a valuation ordered afterwards is the lender's first look at a price the buyer is already bound to pay. A pre-approval does not solve this. It is a statement about the borrower, not about the property, and it does not promise that the lender will accept the home at the price paid.
What a buyer can do about it
Hunter Galloway sets out the options in roughly the order buyers try them.
- Check the factsCorrect errors in land size, rooms, parking or condition, with a document for each.
- Ask for a reviewPut about three recent settled sales of truly similar homes to the lender, with dates.
- Try another lenderA different lender may use a different valuer or method. The whole loan must suit it first.
- Add fundsMore savings, a documented gift or a guarantor can bring the ratio back down.
- Talk to the sellerA lower price or changed terms is possible only if the seller agrees.
Each has limits worth knowing.
A review succeeds on evidence, not on disappointment. The firm's guide suggests starting with settled sales within about two kilometres and six months, matched for type, size, bedrooms and condition, and being candid about the differences. Asking prices and an agent's appraisal carry little weight. For renovations, approved plans, invoices and dated photographs help, though the guide notes that what work cost is not the same as what it added to market value.
Related readOne broker for every 904 adults: where the home loans they write goA second lender is not a free second opinion. It means a new application, with its own checks, timing and possibly a further enquiry on the buyer's credit file. A new valuation by the same method from the same records may give the same answer, and the guide adds that a second valuation can come in lower as well as higher. An upfront valuation from another lender is also not an approval.
More cash solves the ratio but has to be real and verifiable. Lenders look at where a deposit came from. A family guarantee, where a relative's property supports part of the loan, is a separate commitment by the guarantor with its own risks.
Renegotiation depends entirely on the seller. In a market where homes are taking longer to sell, a seller may prefer a small reduction to starting again, and Hunter Galloway describes a Hobart case in which a seller accepted $20,000 less in return for a settlement brought forward by two weeks. A seller with other interested buyers may simply decline. Any change must be recorded in writing through the solicitors.
And where the contract is still conditional and the condition has not been met, the buyer may be able to end it. That is a legal step with consequences, to be taken on advice and within the time the contract allows.
The finance date does not move by itself
A review or a second application takes days the contract may not have. The standard contract contains no automatic extension of the finance date. A later date needs the seller's agreement, in writing, before the original one passes.
Off-the-plan and new homes
The risk is larger where a long time passes between signing and settlement. A buyer who contracts for an apartment or a house and land package may not settle for a year or more, and the valuation is done near the end, at whatever the market then supports.
Related readBrokers now write 81 per cent of new home loans, a record shareHunter Galloway notes that several lenders treat off-the-plan contracts differently according to their age, distinguishing those signed more than 12 months before completion from newer ones, and that this affects whether the lender uses a current valuation of the finished home or the lower of the price and the valuation. For land that is not yet registered, the firm's advice is to recheck both the finance and the likely valuation as settlement approaches.
An off-the-plan contract is often unconditional long before settlement. A buyer in that position who faces a shortfall has the options of more funds, another lender or negotiation, and no right to end the contract on that ground.
What the wider figures say
A valuation shortfall at purchase is a different thing from owing more than a home is worth. The first affects how a new loan is put together. The second concerns existing borrowers whose homes have fallen in value.
On the second, the Reserve Bank's Financial Stability Review of 1 October 2026 estimated that fewer than 1 per cent of borrowers nationally owe more than their home is worth. Falling prices have not yet put many existing owners in that position. For people buying now, the more immediate effect of a softer market is the one described here: the possibility that the lender's figure and the contract's figure will not match.
Before signing
Almost all of the protection against a low valuation is taken before the contract is signed, not after.
A buyer can ask their broker or lender which valuation method is likely for the loan and whether a valuation can be ordered before the finance date. A buyer can work out the loan against a lower value in advance, to see what a shortfall of 5 per cent would require in cash, and keep that reserve apart from the money for duty and costs. A buyer relying on a finance condition can allow enough days in it for a valuation and, if needed, a review. And a buyer bidding at auction or signing without a finance clause should treat the valuation as a risk they are choosing to carry, and settle with their broker beforehand how a gap would be met.
Kooky, from Shaka
Kooky edits Queensland Estate and builds Shaka, the payment router he made for Queensland property professionals. One payment comes in, and every agent, agency and party in the deal receives their signed share on closing date.
