Market value, not your business plan
The instruction and valuation basis matter. The valuer is not simply confirming the contract price, build cost or amount you want to borrow.
SECURITY VALUE EXPLAINER
Commercial Property Valuation Process
A commercial valuation is not just a bigger version of a house valuation. The valuer may analyse rent, vacancy, lease terms, operating costs, comparable sales, market yield, building condition and alternative use.
Plain-English borrower guideNo credit enquiryGeneral guidance onlyReviewed August 2026
THE VALUER’S ROLE
The valuation supports the lender’s security assessment
APRA requires regulated banks to assess repayment capacity and not use collateral as a substitute. The valuation is still critical because it helps the lender understand the value, marketability and risks of the property security.
Independent from the approval
The valuer provides an opinion under the instruction; the lender separately applies credit policy, LVR, serviceability and legal requirements.
A point-in-time opinion
Market conditions, lease events, property condition and new information can change value later.
More than one method
Depending on the property, the valuer may consider comparable sales, income capitalisation, discounted cash flow or cost evidence.
WHAT THE VALUER MAY ASSESS
Income, property and market evidence work together
A commercial valuation can be sensitive to details that do not matter in a typical house valuation.
| Area | Examples of evidence | Why it matters |
|---|---|---|
| Lease and income | Lease, options, reviews, incentives, arrears, rent schedule, outgoings | Supports sustainable net income and lease risk analysis |
| Property | Area, use, zoning, access, services, condition, fit-out and capital works | Affects utility, alternative use and buyer demand |
| Market | Comparable sales and leasing, vacancy, yields, supply and demand | Supports the adopted market assumptions |
| Tenant / operator | Credit quality, concentration, related party, licences and operating dependence | Can affect income durability and marketability |
| Environmental / compliance | Contamination, cladding, fire, approvals, heritage and building issues | Can create cost, delay, insurance or saleability risk |
| Transaction | Contract, GST treatment, related parties and unusual conditions | Helps the valuer understand whether the sale is normal market evidence |
SEE THE SENSITIVITY
Understand income and cap-rate movement
This example shows why valuation discussions should include both sustainable net income and market yield evidence.
Income-value sensitivity check
This is an educational capitalisation example, not a valuation. It shows why small changes to net income or the market capitalisation rate can move an income-based value.
Illustrative value at entered inputs—NOI divided by the entered capitalisation rate.
Value if cap rate rises—A higher capitalisation rate generally produces a lower income-based value.
Value with income downside and cap-rate rise—Shows combined sensitivity only.
A qualified valuer may use more than one method and will analyse market evidence, lease terms, property condition and other factors.
COMMON VALUATION APPROACHES
The method depends on the property and available evidence
A valuer may reconcile more than one approach rather than rely on a single formula.
Comparable sales
Recent relevant sales are adjusted for differences such as location, size, lease, condition and use.
Income capitalisation
Sustainable net income is capitalised using a market-supported rate. Small changes to income or rate can materially move value.
Discounted cash flow
Future income, vacancy, leasing costs, capital expenditure and sale value are modelled over time and discounted.
Cost approach
Land and improvements may be considered, allowing for depreciation and obsolescence. Cost does not automatically equal market value.
IF THE VALUATION IS LOWER THAN EXPECTED
Find the reason before arguing with the number
A useful response addresses evidence, assumptions or the transaction structure rather than simply saying the contract proves the value.
Read the key assumptions
Check the adopted rent, vacancy, outgoings, areas, lease details, capitalisation rate, condition and property description.
Correct factual errors
Provide documents for any genuine error in area, lease, tenant, improvements, approvals or comparable evidence.
Ask about a review process
The lender controls the instruction and review. A borrower usually cannot direct the valuer independently.
Rework the transaction
Possible responses include more equity, a smaller loan, different lender, price renegotiation, extra security or postponing until risk is resolved.
SPECIALISED AND OPERATOR-DEPENDENT PROPERTY
Separate the land and building from the trading story
For some assets, value depends heavily on licences, approvals, fit-out, management, occupancy and a limited buyer pool. The valuer may consider alternative use and the cost of conversion.
Standard industrial, office and retail
Market depth, location, access, building condition, lease quality and alternative use normally matter. A conventional property can still be difficult if it is vacant, poorly located or highly altered.
Medical, childcare and pharmacy
Fit-out, licences or approvals, operator capability, local demand and the cost of changing the property to another use can affect both cash flow and value.
Hotels, pubs, caravan parks and aged care
The property and operating business may be closely connected. Management, occupancy, seasonality, licences, staffing and capital works can become central to the credit decision.
SDA and other specialised accommodation
Design certification, enrolment or registration, provider arrangements, participant demand, vacancy and alternative-use value need to be separated rather than treated as one guaranteed income stream.
Self-storage, land-lease and emerging assets
Stabilised occupancy, ramp-up assumptions, pricing, operating costs, development stages, presales and management systems can matter more than a single headline rent or forecast.
Service stations and environmentally sensitive sites
Lease quality, site history, contamination risk, environmental reports, remediation exposure and future marketability can affect valuation, leverage and lender appetite.
VALUATION PACK
Information that can prevent avoidable delays
Provide complete, consistent documents before the inspection or desktop assessment.
- Signed leases, variations, incentives, options, rent reviews, arrears and a current tenancy schedule.
- Owner-paid outgoings, property operating costs and evidence behind the net income figure.
- Plans, areas, title, zoning, approvals, occupancy permits and details of recent improvements.
- Building, fire, environmental, cladding, contamination or other specialist reports where relevant.
- For owner-occupied property, enough information to explain the use and any specialised fit-out without asking the valuer to value the business as the property.
- Details of known defects, vacancy, major capital works and transactions between related parties.
COMMON QUESTIONS
Commercial valuation questions
A broker can help organise the valuation pack and query process, but cannot control the valuation outcome.
Why can the lender valuation be below the purchase price?
The valuer may adopt different income, market yield, comparable evidence, property risk or value assumptions. The contract is evidence, not an automatic valuation.
Who chooses the valuer?
The lender usually orders the valuation from its panel or approved process to preserve independence.
Can I use my own valuation?
It can be useful background, but the lender may require a new report under its own instruction and panel.
How long is a commercial valuation valid?
There is no universal period. The lender decides whether a report is current enough for the transaction and market.
Does the valuation include the business?
A property valuation may not include goodwill, stock or the operating business unless specifically instructed. Separate the property and business components.
What is a capitalisation rate?
It is a market-derived rate used to convert sustainable net income into an income-based value. A higher rate generally produces a lower value.
What if the property is vacant?
The valuer may assess market rent, leasing time, incentives, holding costs and alternative use rather than relying on an existing lease.
Can a low valuation be challenged?
Factual errors or material overlooked evidence can be submitted through the lender’s review process. A different opinion alone may not be enough.
COMMERCIAL FINANCE LEARNING PATH
Move between the question you have now and the next useful check
Each page owns one topic, while the pillar, calculator and guide bring the whole transaction together.
Focused explainers
DSCR explainedHow lenders test whether cash flow can cover the debt.Deposit and LVRHow value, loan size and property risk affect your contribution.Covenants and annual reviewsWhat ongoing loan promises and reviews can mean after settlement.Costs and feesPurchase, finance, due-diligence and ongoing costs to budget for.Valuation processWhat the valuer looks at and why the lender value can differ.Lease-doc vs full-docThe evidence pathways and trade-offs in plain English.Commercial refinanceHow to compare a refinance, release equity and manage maturity.
Core tools and guidance
Commercial Property FinanceSpeak with a commercial finance broker about the complete transaction.Commercial Property CalculatorModel repayments, income support, property-value limits and cash needed.Commercial Property Finance GuideRead the broader end-to-end commercial property finance guide.Commercial Property Market UpdateSee the market and lending context around commercial property.Business Loan Eligibility CheckOrganise a first-pass business funding scenario before a full review.
Official sources and further reading
These sources support the general regulatory, valuation, tax or consumer-protection context. They do not provide lender-specific approval rules. Links checked August 2026.
NEXT STEP
Use the explainer to frame the question, then check the whole transaction.
Rate Challenge can review the borrower, property, lease or business cash flow, valuation, evidence, costs and loan structure together. A specific lender outcome is only available after the full scenario is assessed.
General information only. This page does not provide legal, tax, valuation or financial advice; quote a lender’s current policy; assess eligibility; or promise approval. Lender policy, pricing and documentation can change. Confirm the transaction with the relevant lender, broker, lawyer, accountant, valuer, conveyancer and government authority before acting.