Why independent valuations matter
In property-backed lending, the value of the security property is central to the credit assessment. It determines the loan-to-value ratio, informs the lender’s exposure analysis, and provides a benchmark against which potential recovery can be assessed in the event of default.
For this reason, it is standard practice in the Australian non-bank lending sector — and increasingly a regulatory expectation — for the valuation to be prepared by an independent, qualified valuer who has no financial interest in the outcome of the loan.
What does an independent valuation involve?
An independent property valuation is prepared by a certified practising valuer (CPV) who is a member of a recognised professional body, such as the Australian Property Institute (API). The valuer inspects the property, analyses comparable sales data, considers relevant market conditions, and provides a written report setting out their assessed value.
For development lending, the valuation may include an assessment of the property’s current “as is” value, its expected value upon completion of the proposed development (“as if complete”), and in some cases, a residual land value or feasibility assessment.
How valuations protect lenders and investors
The independence of the valuation process serves as a critical safeguard against overvaluation — one of the most significant risks in property-backed lending. If a property is overvalued at the time of lending, the actual equity buffer supporting the loan may be lower than the stated LVR suggests, increasing the risk of loss in the event of default.
By requiring independent valuations on all security properties, lenders can reduce this risk and provide greater transparency to the investors whose capital is deployed through their funds.
Valuation standards and best practice
In Australia, property valuations are prepared in accordance with the International Valuation Standards (IVS) and the Australian Property Institute’s professional practice standards. These frameworks set out the methodology, disclosure requirements, and ethical obligations that apply to practising valuers.
Best practice in property-backed lending includes commissioning valuations from a panel of approved valuers, rotating valuers to avoid over-familiarity, and ensuring that the lender’s credit team reviews each valuation report as part of the loan assessment process.
Related resources from Granor Capital
Independent valuations directly influence loan-to-value ratios across all property-backed lending. Learn more about the development loan application process, including when valuations are required. Explore Granor Capital’s lending criteria.
This article is provided for general information purposes only and does not constitute financial advice.
