You have an accepted offer. Finance is progressing. Then the lender tells you the valuation came in $40,000 under what you agreed to pay.
The first thing worth knowing is that this is common, and the second is that you have more options than the lender's letter suggests.
Why it matters, in one sentence
A lender calculates its maximum loan from the lower of the purchase price or the valuation.
Buy at $900,000 with a $180,000 deposit and expect an 80 percent loan of $720,000. If the valuation comes in at $860,000, the lender will lend 80 percent of $860,000, which is $688,000. You now need $212,000 rather than $180,000.
The $32,000 gap comes out of your pocket, on top of the deposit you had planned. It is not a reduction in what you owe, it is an increase in what you have to find.
If you cannot cover it, your LVR rises above 80 percent and lenders mortgage insurance enters the picture, which frequently costs more than the shortfall itself.
Why valuations come in low
Comparable sales lag the market. Valuers rely on settled sales, and settlement happens six to twelve weeks after the contract. In a market that has moved, the valuer is working from prices set a quarter ago.
Auction results are treated cautiously. A competitive auction can produce a price above what a valuer will treat as the fair market value, particularly if two determined bidders drove the last stretch.
The property has something unusual about it. Small apartments under a certain floor area, high density buildings in oversupplied postcodes, unusual construction, heritage restrictions, or a location factor like a main road or flight path.
Conservatism is the job. The valuer is protecting the lender's security, not validating your purchase. Where there is doubt they resolve it downwards, because being wrong on the low side costs the lender nothing.
A desktop or automated valuation was used. These are cheap, fast and less accurate. If the number is a long way off, finding out which type was done is the first question to ask.
Challenging it: what actually works
You can request a review. The important thing is that disagreement is not grounds. Factual error is.
Send comparable sales. Recent, genuinely similar, and nearby. Same suburb, similar land size, similar dwelling type, sold within the last three to six months. Three good comparables beat ten loose ones, and a comparable that is obviously superior to the subject property will be dismissed.
Correct factual errors in the report. Ask to see it. Wrong bedroom count, wrong land size, a renovation not accounted for, missing car space, incorrect floor area. These are the revisions that succeed, because you are not asking the valuer to change an opinion, you are asking them to correct an input.
Provide renovation evidence. Invoices and permits for work completed, particularly anything not visible in a short inspection or a desktop assessment.
Ask which valuation type was used. If it was automated or desktop, requesting a full valuation with a physical inspection is a reasonable ask, and sometimes you can pay for it.
Be realistic. Successful challenges are the minority, and they almost always turn on a factual correction rather than persuasion.
If the valuation does not move
Try a different lender. This is the most underused option. Valuations are lender-specific. Different lenders use different valuation firms with different instructions and different risk appetites, and the same property can be assessed materially differently. A second lender returning a higher figure is not unusual.
This is one of the clearest cases where going through a broker helps, because arranging a second valuation through another lender is routine for us and awkward to do alone.
Cover the gap. If you have the cash or access to it, this is the simplest path.
Pay LMI. Accept the higher LVR and the premium. Sometimes the maths works, particularly if the property is one you genuinely want and the shortfall is modest.
Renegotiate. A low valuation is real information and vendors know other buyers will hit the same wall. Whether this is available depends on your contract and whether it is subject to finance. Get advice from your conveyancer before relying on it.
Add a guarantor. Family security can bridge the gap without cash changing hands. It carries real obligations for the guarantor and should not be entered into lightly.
Walk away. Only if your contract permits it. A finance clause may protect you, an unconditional contract will not, and at auction you are generally unconditional from the fall of the hammer. This is why finance approval before auction matters so much.
How to reduce the risk before it happens
Get a fully assessed pre-approval, so the only outstanding condition is the property.
Be careful at auction. You are typically unconditional, so a valuation shortfall becomes your problem with no exit.
Check the property type against lender policy. Small apartments, serviced apartments, student accommodation and certain postcodes carry restrictions that vary widely by lender. Knowing before you bid is better than discovering after.
Keep a buffer. If you are stretching to the last dollar of your deposit, a shortfall has nowhere to go.
Before you make an offer
Knowing which lenders will lend on a particular property type, at what LVR, and how they handle valuations, is the sort of thing worth establishing before you are emotionally committed to a house.
Your Kreddi Score shows your position against real lender policy and which lenders are open to you, with no impact on your credit file. If a valuation has already come in low and you want a second lender's view, that is a conversation worth having quickly, because contract dates do not pause.
Frequently Asked Questions
What happens if a bank valuation is lower than the purchase price? The lender lends against the valuation, not the contract price, so you cover the shortfall in cash on top of your deposit. On a $900,000 purchase valued at $860,000, that is $40,000 you need to find before settlement or your LVR rises and lenders mortgage insurance may apply.
Can you challenge a low bank valuation? You can request a review, though the bar is factual error rather than disagreement. Valuations get revised when the report has wrong details, such as the wrong number of bedrooms or land size, or when you supply genuinely comparable recent sales the valuer did not consider.
Can I get a second valuation from another lender? Yes. Valuations are lender-specific and different lenders use different valuers and different instructions. A second lender may return a materially different figure on the same property, which is one of the main reasons applying through a broker helps in this situation.
Does a low valuation mean I overpaid? Not necessarily. Valuers work conservatively and rely on settled comparable sales, which lag the market by weeks or months. In a rising market, a valuation can be genuinely behind what the property is worth on the day. In a flat market it is more likely to be a real signal.
What is a valuation shortfall? The gap between the purchase price and the lender's assessed value. You must cover it in cash because the lender calculates its maximum loan from the lower of the two figures. It sits on top of your deposit rather than coming out of it.
Know Your Position Before the Valuer Turns Up
A low valuation is survivable. It is far easier to survive when you know in advance how much room you have, and which other lenders would take the file if the first one will not.
Your Kreddi Score shows your position against real lender policy and which lenders are open to you, with no application and no credit enquiry. If a valuation has already landed short, get a second lender's view quickly, because contract dates do not pause.
This is general information, not personal or legal advice. Your rights on a contract of sale depend on its terms and on state law, and you should speak with your conveyancer or solicitor before acting on a valuation shortfall. NIK Finance Pty Ltd is a Credit Representative (567387) of Finsure Finance & Insurance Pty Ltd, Australian Credit Licence 384704.