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Deciphering property valuations: navigating market values, development potential and lender expectations

Property and construction site valuations are an intricate process that significantly impacts financing, insurance, sale and property development decisions. This multifaceted procedure involves assessing a property's current and potential value, considering a variety of factors including location, condition and market trends. This article reviews the essentials of property and construction site valuations, focusing on project-related site values (PRSV), "as-is" values, and "as-if complete" values, culminating in the preparation of a comprehensive valuation report. In the current climate of ever-increasing home values, understanding how properties are valued provides a broader understanding of the property market.

Understanding the Valuation Process

A valuation report is a critical tool used by investors, developers, financial institutions, policy makers and government to make informed property related decisions. The process is carried out by certified professional valuers who employ standardised methodologies to determine the worth of a property or construction site. The valuation report produced is a detailed document that provides clients with a clear understanding of the property's value and the factors influencing it. This article explores the different types of valuation reports, and the factors banks and non-bank lenders focus on when reviewing valuation reports but does not cover how the Valuer-General, representing the Commissioner and the Government, undertakes valuations for duty purposes.

Project-Related Site Values

Project-Related Site Values or PRSV pertain to the valuation of land with consideration for specific future developments. This type of valuation is important to developers and investors as it helps in determining the feasibility and potential return on investment for proposed projects. Valuers assess several factors including zoning laws, the potential for rezoning and the impact of future developments on the property's value.

"As-Is" Values

The "as-is" value of a property is the current value in its present condition without accounting for any improvements or modifications that could be made. This valuation is essential for sellers, buyers and financial institutions involved in the sale or purchase of property as it stands. Factors considered in determining the "as-is" value include the property's location, age, structural integrity and market conditions.

"As-If Complete" Values

Conversely, the "as-if complete" value projects the future worth of a property or construction site after planned developments or improvements are fully completed. This valuation is particularly beneficial for construction loans or for investors looking to gauge the potential value added from their development activities. Valuers consider the final use of the property, market trends and the quality of the proposed developments in arriving at this value.

The Valuation Report

A comprehensive valuation report is the culmination of the valuation process, providing an in-depth analysis of the property or construction site's value. This report includes a detailed description of the property, the methodology used for valuation and a thorough explanation of the factors influencing the determined values. It serves as an essential document for financing, investment analysis and decision making. The report will generally include the as-is, as-if complete or PRSV depending on the instructions set out by the bank or non-bank lender.

Lender's Review of Valuation Reports: Key Considerations

Instruction by the bank or non-bank lender

A fundamental aspect of the valuation process is that the report should generally be instructed by the lender. This ensures that the valuation is tailored to the lender's requirements and is specifically referenced "for mortgage valuation purposes". This alignment is critical as it signifies the report's applicability for securing financing, acknowledging its role in underwriting mortgage loans.

Adherence to Standard Instructions and API Guidelines

Lenders scrutinise whether the valuation report has been prepared in accordance with their standard instructions, as well as any additional requirements outlined in the letter of instruction. Furthermore, the report should reference the Australian Property Institute (API) guidelines or equivalent standards relevant to the location of the property. This adherence underscores the report's credibility and ensures consistency in valuation practices.

Recent Comparable Sales Data

A key item that lenders usually assess is the timeliness of the comparable sales data utilised in the report. Data within a three- to six-month range is usually preferred, as information older than six months might be considered outdated or less reflective of the current market conditions. This recency of the comparable sales ensures that the valuation is based on the current market environment, which is critical for accurate property valuation.

Expiry of Valuation Reports

Lenders pay close attention to the date of the valuation, as the professional indemnity of the certified valuer typically does not indemnify the valuer after 90 days from the date of valuation. This expiration period is crucial because it reflects the lender's need for up-to-date information reflecting current market conditions. Valuations older than 90 days may not accurately represent the property's current value, affecting the loan-to-value ratio and, subsequently, the outcome of the loan approval.

Note on Second Mortgage Lending or Mezzanine Financing

Valuation reports typically include a disclaimer that any second mortgage lending is not covered by the valuer's Professional Indemnity Insurance. This acknowledgment is important as it clarifies the scope of the valuation's applicability and insurance coverage.


The valuation of properties and construction sites is a complex but essential process that influences a wide range of economic activities. Whether it's determining the current worth of a property, the feasibility of a project or the potential value upon completion of developments, professional valuers play a pivotal role. Through meticulous analysis and adherence to standardised methodologies, the valuation report they produce is a vital tool for stakeholders across the real estate and construction sectors. Understanding the nuances of PRSV, "as-is" values and "as-if complete" values is crucial for making informed decisions in the dynamic world of property investment and development.

In addition, the criteria that lenders use to review valuation reports are essential in ensuring that these documents provide a reliable and current assessment of the property's value for mortgage purposes. From ensuring that the report is specifically instructed for mortgage valuation purposes to checking for the relevance of comparable sales data and understanding the implications of disclaimers on second mortgage lending, these considerations play a pivotal role in the financing process. As the real estate and construction landscapes continue to evolve, adhering to these standards and guidelines in valuation reports becomes even more critical for all parties involved in property investment, development and financing.

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PropetySensor Financial Services
PropetySensor Financial Services