Commercial Valuations: What Not to Assume Before Buying

You have found the premises that could take your business to the next level. Before you fall in love with it, know that the lender's valuation, as well as your purchase price, shapes how much you can borrow.

That one figure shapes your deposit, your loan structure and sometimes whether the deal goes ahead. For Riverside business owners dreaming of owning their own space, a little planning here protects the dream.

How Does a Commercial Property Valuation Affect Your Loan?

The lender applies its loan-to-value ratio (LVR) to the lower of the purchase price and its valuation, so a low valuation can reduce how much you can borrow.

If you agree to pay more than the valuer says the property is worth, you cover the gap from your own funds. The borrower is typically responsible for paying the cost of the valuation, and the fee can vary by lender, so it is worth asking about that cost early.

Why Is Commercial LVR Lower Than a Home Loan?

Commercial lenders usually lend a smaller share of the property's value than home loan lenders do. Commercial lenders typically offer 60% to 70% LVR, compared to 80% or higher for residential purchases.

The reason is risk. Tenant vacancies or business failures can quickly affect property income and value. The final LVR depends on the property type, tenant strength, lease terms, and your overall financial position.

This means a commercial purchase usually asks for a bigger slice of your own money than a home purchase. Your own equity in another property may help, but using it adds risk, because that property becomes security for the loan too. You can read more about how we approach this on our commercial loans page.

What Happens If the Valuation Comes In Below the Price?

The lender lends against the lower valuation figure, and you fund the shortfall. Here is how that plays out in a scenario like this.

Consider a Riverside business owner who agrees to buy a workshop for their growing trade business. They plan around a 65% LVR, so they expect to fund 35% of the price from savings and equity, plus costs. The lender's valuer then assesses the property at 5% below the contract price.

At 65% of the lower valuation, the loan is about 61.75% of the purchase price. The buyer now needs to fund about 38.25% of the price instead of 35%. That is a gap of about 3.25% of the price that they had not planned for.

Because they spoke to a broker before signing, they had already kept some funds aside for exactly this. They also asked the seller to consider a price adjustment and, after talking it through, settled with the extra money coming from their own savings. If they had assumed the price would equal the valuation, the shortfall could have put settlement at risk.

The trade-off is that holding a buffer means keeping cash tied up that you might prefer to put into the business.

How Do Valuers Treat Different Commercial Property Types?

The type of property and how it is used changes the value a lender will accept. Lenders typically use the going concern value for investment property and the vacant possession value for owner-occupier property.

The valuation basis depends on whether the lender treats the purchase as investment or owner-occupied, so ask your broker how each lender will value it.

Specialised properties can be harder to value. Comparable sales are limited for those assets, and lenders may cap LVR lower for them. Strata title commercial units can also face tighter limits. Lenders view strata commercial properties as higher risk because you don't control the entire asset. Some lenders reduce their LVR or won't lend on certain strata types at all.

If you are weighing up an office, warehouse or retail space, tell your broker what the property will be used for before you make an offer. The answer can change which lenders suit you.

Why Different Lenders Can Value the Same Property Differently

Two lenders can reach two different numbers for the same building. Some lenders use desktop or kerbside valuations for smaller commercial property loans, and a different lender's valuation panel may reach a different number.

That is where a broker earns their place. Ryan Pendergast and Sally Pendergast bring over twenty years of combined experience across finance, professional services and sales and marketing, and can talk through which lenders suit your property type, so you are not learning about valuation limits after you have signed a contract.

We can compare options from banks and lenders across Australia, and arrange your valuation and loan structure around your plans. If you are weighing up other ways to fund growth, our business loans page covers those options too.

Planning Your Finance Before You Make an Offer

Talk to a broker before you sign, and ask your solicitor whether the contract should include a finance condition. That way a low valuation does not leave you stuck.

The LVR a lender offers depends on the property, the lease and your circumstances, and each lender has its own policy. Understanding your numbers early means you can shop for premises with confidence. If you are a Riverside local, our Riverside mortgage broker page explains how we work with people in your area.

Call one of our team or book an appointment at a time that works for you. Tell us about the space you have your eye on, and we will talk through how a valuation could shape your loan.

Frequently Asked Questions