How Property Valuations Work When Releasing Equity

Refinancing

8 Oct

So you’re thinking about releasing equity from your home - and one of the key steps in that process is understanding how property valuations work. In this article I’ll walk you through how lenders and valuers assess your property, what methods they use, what you can expect, and how that valuation affects how much equity you might be able to access.

Think of it as a behind-the-scenes look at the valuation mechanics when tapping into your home’s value.

What Is a Property Valuation in the Context of Equity Release

A property valuation is essentially an independent (or semi-independent) assessment of what your home is worth in the current market. Lenders use that value as the foundation to decide how much of your equity they’re willing to let you access. It’s not about what you paid, or what you think it's worth - but what a valuer or model says it’s worth today.

When releasing equity, the lender will look at the valuer’s estimate (or potentially an automated valuation model) and subtract what you already owe on your mortgage. The difference is your “usable equity” (subject to lender rules). Many lenders cap lending to around 80 percent of the home’s value (the Loan to Value Ratio, or LVR) before considering equity release.

Methods of Valuation: Manual vs Automated

There are a few common methods valuers (or lenders) use.

On-site inspection by a qualified valuer: A valuer visits your property, inspects its condition, size, layout, improvements, and compares it with recent sales nearby. This is the traditional method and often gives the most precise result.
Automated Valuation Models (AVMs): These use algorithms and recent sales data to estimate a value without physical inspection. They are faster and cheaper, though sometimes less accurate for unique or renovated properties.
Comparative market analysis (CMA): This is similar to how real estate agents price homes: comparing your property with others recently sold in your area, adjusting for differences (size, configuration, condition).
Hybrid approach: Sometimes a valuer will use both local comparables and drive-by checks or photos plus AVM data to form their estimate.

Which method is used often depends on the lender, the amount of equity you request, and how complex your property is (e.g. nonstandard design, large acreage, major renovations).

Who Orders the Valuation and Who Has Final Say

When you apply to release equity, the lender or their panel will engage the valuer (or valuation service). Even if you bring along a recent real estate agent appraisal, the lender still relies on their chosen valuation for security purposes. In forums, homeowners sometimes ask: “Can I use my own appraisal?” The answer: not usually in place of the lender’s valuation. One user put it clearly: “The bank is the one taking the security … the bank will … determine what the value is … valuations are really just an opinion … lenders tend to use different valuers.”

So the lender has the final say over which valuation is accepted and what figure they use in their calculations.

What Adjustments and Deductions May Be Made

After the raw valuation comes a few checks and adjustments before determining usable equity:

Condition and defects: If your home has structural issues, wear and tear, or needs repairs, the valuer may reduce the value accordingly.
Recent sales volatility: If local sales have been volatile, valuers may apply a discount or buffer.
Location, zoning or land constraints: If your property is in a quirky zone, on a steep slope, flood area, or has subdivision limits, that can reduce value.
Minor improvements or renovations: Some features add value, others don’t (or may even detract if they limit appeal). The valuer will account for that.
Market timing: A valuation reflects the market at the time of inspection. If property values shift quickly, that valuation may become outdated faster.

Once that final value is accepted, the lender then applies their LVR ceiling and subtracts your existing mortgage balance to decide how much additional you can borrow.

How Valuation Impacts How Much Equity You Can Access

Your valuation determines your maximum borrowing limit under equity release. For example, if your home is valued at $800,000 and you owe $300,000, 80 % of $800,000 is $640,000. That minus your $300,000 debt leaves $340,000 of “usable equity” (before considering income, serviceability, fees). This is a common approach in the industry.

But in practice, you won’t always get that full amount. Lenders will further assess your income, debts, risk factors and purpose of funds. Sometimes there’s a “cash-out” limit (how much extra cash you can draw beyond strictly replacing your existing mortgage) or other restrictions.

Reverse mortgages or specialised products may have different caps (e.g. for older borrowers) and use different valuation and LVR rules.

Why Valuation Can Be a Point of Negotiation

Because valuations are to some degree subjective (especially when properties differ from standard stock), there is room to engage:

If your property has improvements that you believe aren’t fully reflected, you can present evidence (photos, receipts, comparable sales) to support your case.
Using a broker gives you access to lenders with more flexible valuation policies or better valuation panels.
In some cases, multiple valuation bids can be submitted to see which presents a more favourable outcome.

But beware: lenders will not simply accept any number you choose - security is their priority.

Conclusion

At the end of the day, property valuation is a critical gatekeeper in equity release. It shapes the maximum amount you can access, dictates the lender’s level of risk, and influences whether your application succeeds or not.

The better your valuation (consistent with market, condition, and comparables), the more confidence the lender has in unlocking your equity. Understanding how these valuations work, how they’re done, adjusted, and decided, gives you an advantage in navigating the equity release process more intelligently.