Commercial Property Valuation Process
Commercial valuations drive LVR, approval conditions and (sometimes) pricing. This page explains how lender valuations work, what valuers assess, and how to reduce delays and surprises.
If you’re planning leverage, start with commercial property LVR & deposits. If you need a lender-fit strategy across valuation, leases and DSCR, speak with a Commercial Mortgage Broker Australia.
General information only — not financial, legal or tax advice. Always confirm assumptions, fees and lender policy for your scenario.
Discuss valuation risk & lender fit
1) Where valuation sits in the commercial loan process
In commercial property finance, valuation is not a formality — it’s a key decision input. The valuation impacts the lender’s LVR, how much they’re willing to lend, and sometimes the conditions and pricing they apply.
Typical timing:
- Purchase: valuation is usually ordered after initial credit sign-off / conditional approval and before final documentation.
- Refinance: valuation is generally required early because it drives maximum lendable amount and any cash-out.
- Annual review: some lenders request updated valuation evidence if risk has changed or LVR is tight.
If you’re planning leverage and deposit, pair this page with commercial property LVR & deposits. If serviceability is the bigger question, start with DSCR explained.
2) Types of valuations lenders use
Commercial lenders typically use panel valuers for independence. The valuation type depends on policy, risk and asset complexity:
Most common for commercial property. Includes inspection, lease review, market evidence and a written report.
More common for lower-risk situations or review updates, depending on the lender and property type.
For developments or major works, lenders may require valuations based on current state and the proposed completed outcome (subject to conditions).
Specialised assets can require more detailed methodology and evidence, which can increase time and cost.
The loan structure and documentation pathway (lease-reliant versus full financials) can change how lenders treat income. If your deal relies heavily on the lease, read lease-doc vs full-doc commercial loans.
3) What valuers look at (and how value is formed)
For most income-producing commercial property, valuation is anchored to the income approach (capitalisation of net income), and cross-checked against comparable sales and market evidence.
| Driver | Why it matters | What to prepare |
|---|---|---|
| Net income (effective rent) | Value is typically driven by sustainable net income, not optimistic rent. | Executed lease, incentives, outgoings, evidence rent is paid. |
| Lease strength | WALE, tenant strength and concentration affect income reliability. | Lease expiry schedule, tenant details, arrears history. |
| Market evidence | Comparable sales and leasing evidence influence cap rates and value. | Any credible comparable evidence (if available), market commentary. |
| Property condition & capex | Condition affects buyer demand and future maintenance requirements. | Recent capex details, building reports (if available). |
| Location & sector sentiment | Market softness can widen cap rates and reduce value. | Understand lender sentiment in the Commercial Property Market Update. |
4) Documents that reduce valuation delays
The biggest avoidable valuation delays usually come from missing lease and outgoings information. A “valuation-ready pack” makes the valuation faster and reduces conservative assumptions.
- Contract of sale (if purchase) and settlement timetable
- Executed lease(s), rent schedule and any variations
- Current rent roll, tenant contact details, arrears status
- Outgoings budget and what is recoverable vs non‑recoverable
- Incentives (rent-free, fitout contributions) and effective rent detail
- Evidence of rent payments (bank statements or ledger excerpts)
- Plans, site details, zoning info, and any approvals where relevant
- Recent capex / refurbishment detail (with invoices if available)
Note: lenders often require the valuation to be ordered through their process (panel management) to preserve independence.
5) If the valuation comes in low: what you can do
A low valuation is one of the most common commercial “deal breaks” because it can change the LVR overnight. Your options depend on whether you’re purchasing or refinancing:
- Increase deposit / reduce the loan amount (see LVR & deposits)
- Provide additional security (where appropriate)
- Renegotiate price or terms with the vendor
- Change lender strategy if a different policy fit exists
- Reduce cash-out expectations (or stage it)
- Restructure the facility (term, amortisation, split, additional security)
- Consider refinance timing or lender appetite (see refinance guide)
If the report contains factual errors or missing documents, you can often provide additional evidence to the lender/valuer to clarify. If the valuation result is simply market reality, the leverage plan needs to change.
6) Valuation, LVR and covenants: the ongoing link
Valuation doesn’t just matter at approval — it can matter after settlement through LVR covenants. If the market softens or your asset becomes harder to lease, an updated valuation can tighten LVR and trigger a review discussion.
If you want the lender behaviour piece, read covenants & annual reviews. If you want to understand how cash flow interacts with the same risk lens, read DSCR explained.
7) Tools & next steps
Understand typical leverage limits in commercial property LVR & deposits.
Use the Commercial Property Calculator to test repayments and DSCR assumptions.
Review a real structure in our SMSF commercial property case study.
Want to reduce valuation surprises (and align lender policy with your asset type and lease profile)? Talk to a Commercial Mortgage Broker.
FAQs
How long does a commercial property valuation take?
Timeframes vary by location, access, and property complexity. For straightforward assets, the inspection-to-report process can be around 1–2 weeks, but specialised properties or tight timeframes can take longer. Delays are common when lease documents or outgoings information is incomplete.
What documents does a valuer usually need?
Common documents include the contract of sale (if purchasing), executed leases and rent schedule, current rent roll, outgoings and incentives, evidence of rent payments, building plans, and details of recent capex. The more complete the lease and income pack, the smoother the valuation.
Can I choose the valuer for a lender valuation?
Usually the lender selects the valuer from an approved panel to maintain independence. You can sometimes request a particular firm, but approval depends on the lender’s policies. If you already have an independent valuation, a lender may still require their own.
What valuation methods are used for commercial property?
Valuers commonly use an income approach (capitalisation of net income) and cross-check against comparable sales. For specialised assets they may also consider cost/replacement approaches. The method emphasis depends on asset type, lease structure and availability of comparable evidence.
Why can a valuation come in lower than the contract price?
Common reasons include optimistic rent assumptions, short WALE, incentives not reflected in effective rent, higher vacancy risk, weaker tenant strength, or recent comparable sales supporting a lower value. Market conditions and sector sentiment can also impact cap rates.
What happens if the valuation comes in low?
A low valuation can reduce the maximum loan amount (LVR), which may require a higher deposit, extra security, a different lender, or renegotiating the purchase price. In refinance scenarios, it can limit cash-out and may trigger covenant pressure.
Does lease quality affect valuation?
Yes. Lease term, tenant strength, incentives, arrears, outgoings recovery and vacancy risk materially affect value. Strong documentation and evidence rent is being paid can support the income story that underpins valuation and DSCR.
Will lenders revalue at annual review?
Not always, but it’s common for lenders to seek updated valuation evidence if the deal is tight on LVR, if market conditions change, or if you request changes to the facility. Some lenders do periodic valuation updates as part of monitoring.
Can I challenge or review a valuation report?
You can ask questions and provide additional evidence (leases, comparable rents/sales, updated outgoings) if something is missing or incorrect. Formal challenges depend on lender policy and the valuer’s independence, but clarifying errors or omissions can sometimes change outcomes.