You’ve found the right property, negotiated a price, and exchanged contracts. Your finance application is in. Then you get a call from your mortgage broker or lender with a message you weren’t prepared for: the valuation has come in lower than the contract price.
This scenario is more common than most buyers realise, and it creates genuine stress at one of the most important moments in the purchase process. But it is manageable, and understanding your options clearly before the panic sets in makes an enormous difference to how you navigate it.
This guide explains what a low valuation actually means, why it happens, and what your practical options are as a buyer in NSW.
What a Lender’s Valuation Is and Why It Matters
When you apply for a home loan, your lender will commission a valuation of the property you intend to buy. This is done by an independent, registered valuer who assesses the property’s value based on comparable recent sales and the property’s own characteristics. The valuer’s job is not to confirm that you made a good decision. It is to give the lender an independent assessment of what the property is worth as security for the loan.
Your lender will lend against the lower of the contract price or the assessed valuation. If the valuation equals or exceeds the contract price, no problem arises. If the valuation comes in below the contract price, there is a gap that creates a problem.
The gap matters because your lender calculates your loan-to-value ratio, known as the LVR, based on the valuation figure, not the contract price. If the valuation is lower, your effective LVR is higher than you assumed, which may push you into lenders mortgage insurance territory, reduce the amount the lender will lend, or in some cases cause your approval to be subject to additional conditions.
Why Low Valuations Happen
Understanding why a valuation comes in low helps you assess your options clearly.
The most common reason is that the contract price reflects market factors that comparable sales evidence doesn’t fully support yet. In a rising market, prices move faster than sold data. If you competed at auction or in a multi-offer situation and paid a strong market price, the valuer may not yet have equivalent sold evidence to support that level.
In a regional market like Wagga Wagga, comparable sales can sometimes be thin. If there are very few genuinely similar properties that have sold recently in your specific suburb, the valuer has a smaller and potentially less reliable evidence base to work from. This can lead to conservative valuations in markets where competition has driven prices above what recent historical sales reflect.
In some cases, a low valuation reflects a genuine difference of opinion about what the property is worth, and the valuer’s figure is a more accurate representation of market value than the price you agreed to pay. This is an uncomfortable possibility that is worth sitting with honestly as you consider your options.
Your Options When Facing a Low Valuation
Option One: Make Up the Shortfall From Your Own Funds
If the valuation comes in short of the contract price, the most straightforward resolution is to cover the difference from your own savings. Your lender will lend against the valuation figure, so if there is a gap between that figure and the contract price, you need to fund it separately.
This reduces the available cash you have for other costs associated with the purchase, your deposit, stamp duty, conveyancing fees and settlement buffer. Before pursuing this option, work through your full acquisition cost picture with your mortgage broker to confirm you have sufficient funds to complete the purchase and cover all other required costs.
Option Two: Request a Review or Second Valuation
If you believe the valuation is incorrect and can identify specific comparable sales that support a higher figure, your mortgage broker can request a review of the valuation. This involves providing the valuer with additional comparable evidence that may not have been available or considered in the original assessment.
Not all lenders readily accommodate reviews, and they are not guaranteed to produce a different outcome. However, in situations where you have clear, recent, genuinely comparable sales evidence that is stronger than what the valuer used, a review is worth pursuing.
Some brokers also have access to multiple lenders with different valuers, and it is sometimes possible to submit an application through a different lender whose valuer produces a more favourable result. This is not always available and depends on your circumstances, but it is a legitimate avenue worth discussing with your broker.
Option Three: Renegotiate the Purchase Price With the Vendor
In a private treaty sale, a low valuation can provide grounds for returning to the vendor with a reduced offer. If the independent valuation has assessed the property at a figure lower than the contract price, you have a factual basis for the conversation. Whether the vendor will be willing to reduce the price depends on their circumstances and how strong buyer competition for the property was.
Approaching this conversation through your conveyancer and agent, rather than directly and informally, keeps the negotiation professional and documented. Your conveyancer can advise on your rights and options under the contract given the circumstances.
It’s worth noting that if your contract contains a finance condition, a low valuation that prevents your loan from being approved may give you grounds to exercise that condition. This is a detail that depends entirely on the specific wording of your finance condition and should be discussed with your solicitor or conveyancer immediately.
Option Four: Proceed With a Different Loan Structure
Depending on your overall financial position, a different loan structure, such as a higher LVR loan with lenders mortgage insurance if you don’t already carry LMI, or a guarantor arrangement, may allow you to bridge the gap between the valuation and the contract price. Your mortgage broker can model whether this is viable and what the additional costs would be.
Option Five: Walk Away if the Finance Condition Allows
If your contract is subject to a finance condition and your lender cannot approve the loan at the required amount due to the low valuation, you may be entitled to rescind the contract and recover your deposit. The specific rights you have depend on the precise wording of the finance condition in your contract. Do not make any assumptions about this without specific advice from your conveyancer.
Walking away is never a comfortable decision, particularly if you have formed a strong attachment to a property. But proceeding with a purchase at a price that independent assessment suggests is above market value, without the financial capacity to manage the shortfall comfortably, can create a worse outcome in the long run.
Acting Quickly Is Important
A low valuation creates a time-sensitive situation. Your settlement date is fixed and approaching, and resolving the gap requires action across multiple fronts simultaneously: communicating with your lender, working with your mortgage broker, engaging your conveyancer on the contract implications, and potentially negotiating with the vendor.
As soon as you receive news of a low valuation, contact your mortgage broker and your conveyancer. Do not wait to see if it resolves itself. The faster you understand your options and begin acting on them, the more time you have to work toward a solution before settlement.
PRD Real Estate Wagga Wagga Is Here to Help
If you’re navigating a challenging purchase situation in Wagga Wagga, including a valuation issue, PRD Real Estate Wagga Wagga’s experienced sales team can help you understand the local market context and connect you with the right professionals. We deal with complex purchase situations regularly and are happy to talk through what’s happening and what your options look like.
