Quick Answer: Why Do Off-the-Plan Property Valuations Matter?

Off-the-plan property valuations are important because a property’s market value at or near settlement may differ from the price originally agreed when the purchase contract was signed. When buying off the plan, there can be a considerable period between signing the contract and completing the purchase. During this time, property market conditions, interest rates, buyer demand, comparable sales and lending conditions can change. If a lender’s valuation at settlement is lower than the contract price, the amount a lender is prepared to finance may also be affected, potentially requiring the purchaser to contribute additional funds. Understanding how off-the-plan valuations work can help buyers and investors assess risk, prepare for settlement and make better-informed property decisions.

What Is an Off-the-Plan Property?

Buying a property off the plan generally means agreeing to purchase a property before construction has been completed. In some cases, construction may not have commenced when the contract is signed.

Off-the-plan purchases are common for:

Apartments
Townhouses
House-and-land developments
Master-planned communities
New residential developments

Rather than inspecting a completed property, buyers may make their decision using architectural plans, floor plans, specifications, display suites, artist impressions and information supplied by the developer.

Settlement typically occurs after construction has been completed and relevant contractual and legal requirements have been satisfied.

The time between signing and settlement is one reason off-the-plan property valuations can be particularly important. The market at settlement may be different from the market that existed when the buyer originally committed to the purchase.

Why Are Off-the-Plan Property Valuations Important?

The purchase price of an off-the-plan property is generally agreed when the contract is signed, but the property’s market value can change before settlement.

If construction takes one, two or several years, numerous market factors may change during that period.

These can include:

Interest rates
Property market conditions
Buyer demand
Availability of credit
Local property supply
Comparable sales
Economic conditions
Development activity

A valuation undertaken closer to settlement assesses the property according to the relevant valuation date and market evidence available at that time.

This means the valuation may be higher than, similar to or lower than the original contract price.

For purchasers relying on finance, a difference between the contract price and assessed value can have significant implications.

How Do Off-the-Plan Property Valuations Work?

Professional off-the-plan property valuations require the valuer to assess the property according to the purpose of the valuation and the information available.

Depending on whether construction has been completed, the valuer may consider:

Property location
Development quality
Floor area
Floor plan
Number of bedrooms and bathrooms
Car parking
Storage
Aspect and orientation
Floor level
Views
Outdoor areas
Fixtures and finishes
Common facilities
Comparable property sales
Current market conditions

Where the property is complete and available for inspection, its physical characteristics can be assessed directly.

Where a valuation is required before completion, additional documentation may need to be considered, and the valuation basis may differ depending on the purpose of the assessment.

The valuer’s role is to provide an independent opinion of value based on appropriate evidence rather than simply adopting the price shown in the purchase contract.

Is the Contract Price the Same as Market Value?

Not necessarily.

The contract price represents the amount agreed between the purchaser and vendor when the contract was entered into.

Market value is assessed according to the relevant valuation basis and valuation date.

In a stable market, the two figures may be similar. However, differences can arise when market conditions change between contract signing and settlement.

For example, property values may be influenced by:

Changes in interest rates
Changes in borrowing capacity
New developments increasing local supply
Stronger or weaker buyer demand
Economic conditions
Changes in comparable property prices

The original contract price is relevant information, but it does not automatically determine the property’s value at a later date.

This distinction is central to understanding off-the-plan property valuations.

What Happens If an Off-the-Plan Property Valuation Is Lower Than the Purchase Price?

A valuation below the contract price can create a potential funding gap for a purchaser relying on finance.

For example, suppose a buyer agrees to purchase a property for $800,000. At settlement, the lender obtains a valuation of $750,000.

Depending on the lender’s policies and the approved loan-to-value ratio, the lender may calculate the available finance using the lower valuation rather than simply lending against the original $800,000 purchase price.

This could mean the purchaser needs to contribute additional funds to complete settlement.

The exact consequences depend on:

The loan agreement
Lender requirements
Loan-to-value ratio
Purchaser’s deposit
Available equity
Contractual obligations
Individual financial circumstances

A lower valuation does not automatically allow a purchaser to withdraw from an off-the-plan contract.

Purchasers concerned about their contractual obligations or financing position should obtain appropriate legal and financial advice.

Why Can Off-the-Plan Property Values Change Before Settlement?

The period between signing an off-the-plan contract and settlement creates exposure to changing property market conditions.

Several factors can influence value during this time.

Interest Rate Changes

Interest rates can affect borrowing capacity and housing demand.

Higher borrowing costs may reduce the amount some buyers can borrow, potentially affecting demand and prices in certain markets.

Lower borrowing costs can support purchasing capacity, although interest rates are only one factor influencing property values.

Changes in Property Supply

New apartment or townhouse developments can increase the number of comparable properties available in a particular location.

If a large number of similar properties reach the market simultaneously, buyers may have more choice.

The impact depends on whether demand is sufficient to absorb the additional supply.

Buyer Demand

Changes in population, employment, affordability and consumer confidence can influence the number of buyers competing for properties.

Demand can also vary significantly between different property types and locations.

Economic Conditions

Employment levels, wage growth, inflation and broader economic confidence can influence property market activity.

These conditions may be materially different at settlement compared with when the original contract was signed.

How Do Comparable Sales Affect Off-the-Plan Property Valuations?

Comparable sales are an important source of market evidence for many off-the-plan property valuations.

A valuer may analyse recent transactions involving properties with similar characteristics.

Relevant comparisons can include:

Property type
Location
Floor area
Number of bedrooms
Number of bathrooms
Car accommodation
Floor level
Views
Aspect
Outdoor space
Building quality
Development amenities
Sale date

Not every sale within the same building or suburb will necessarily be directly comparable.

For example, a high-floor apartment with expansive views may attract a different value from an otherwise similar apartment on a lower level.

The valuer considers these differences when analysing available market evidence.

Can Too Many New Apartments Affect Property Values?

A substantial increase in the supply of similar properties can influence local market conditions.

This may be particularly relevant in areas experiencing significant apartment development.

When multiple projects are completed within a similar period, a large number of comparable properties may become available for sale or rent.

This can potentially affect:

Buyer choice
Vendor competition
Rental supply
Investor demand
Resale conditions

However, increased supply does not automatically cause property values to fall.

The effect depends on the relationship between supply and demand.

An area experiencing strong population growth and sustained housing demand may absorb new supply more effectively than a location where development significantly exceeds buyer demand.

Local market analysis is therefore important when assessing individual properties.

How Do Interest Rates Affect Off-the-Plan Property Valuations?

Interest rates can indirectly affect off-the-plan property valuations by influencing buyer affordability, borrowing capacity and overall property demand.

A purchaser may sign an off-the-plan contract when interest rates and lending conditions are favourable, only to encounter different borrowing conditions when settlement occurs.

Changes in interest rates can potentially affect:

Maximum borrowing capacity
Loan repayments
Investor returns
Buyer confidence
Property demand

However, a valuer does not simply increase or decrease a property’s value because interest rates have changed.

The valuation is based on relevant market evidence, including how buyers and sellers are actually behaving in response to prevailing economic conditions.

Does the Developer’s Original Sale Price Determine the Valuation?

No. The developer’s sale price does not automatically determine market value.

The original price may have been established based on:

Market conditions at project launch
Development costs
Marketing strategy
Expected future demand
Property specifications
Developer pricing objectives

A professional valuation is an independent assessment.

Where appropriate, the valuer considers the contract price alongside relevant market evidence but does not simply assume that the original sale price represents current market value.

This independence is an important aspect of off-the-plan property valuations, particularly where a considerable period has passed since the contract was signed.

Do Developer Incentives Affect Property Valuations?

Developer incentives may need to be considered when analysing off-the-plan transactions and comparable sales.

Depending on the development, incentives might include:

Cash rebates
Furniture packages
Stamp duty contributions
Rental guarantees
Upgrades
Body corporate contributions
Other purchaser incentives

The existence and relevance of incentives depend on the individual transaction.

Where incentives materially affect the effective consideration paid by a purchaser, a valuer may need to understand the transaction structure when analysing the sale as market evidence.

This is one reason headline advertised prices do not always provide sufficient information for professional valuation purposes.

How Does Property Location Affect an Off-the-Plan Valuation?

Location remains a fundamental consideration in property valuation.

A valuer may consider proximity to:

Public transport
Employment centres
Schools
Universities
Shopping precincts
Medical facilities
Parks
Entertainment
Major roads

Broader neighbourhood characteristics and future development can also influence buyer demand.

Within an individual development, location-specific differences can occur between apartments or townhouses.

For example, value may be influenced by:

Floor level
Orientation
Natural light
Views
Privacy
Street exposure
Noise
Proximity to lifts
Position within the complex

These characteristics can result in different valuations for properties that appear similar based solely on bedroom count and floor area.

Can Changes to the Finished Property Affect Its Valuation?

The completed property may differ in certain respects from the buyer’s expectations when the original contract was signed.

Depending on the circumstances, differences could involve:

Fixtures
Finishes
Layout
Views
Building amenities
Surrounding development

Whether these differences affect value depends on their nature and significance.

A professional valuer assesses the property according to the relevant valuation circumstances and available information.

Purchasers concerned that a completed property differs materially from contractual representations should seek appropriate legal advice regarding their rights and obligations.

Are Off-the-Plan Apartment Valuations Different From House Valuations?

The fundamental principles of property valuation still apply, but apartments can involve additional considerations.

For an apartment, a valuer may examine:

Internal floor area
Balcony or courtyard space
Floor level
Aspect
Views
Car parking
Storage
Building age
Development quality
Common facilities
Owners corporation considerations
Comparable apartment sales

In large developments, numerous similar apartments may provide useful market evidence.

However, a high concentration of similar properties can also create competition between sellers.

For this reason, off-the-plan property valuations for apartments should consider both the individual unit and the broader market for comparable properties.

Can Off-the-Plan Property Valuations Affect Finance Approval?

Potentially.

Lenders commonly have their own requirements for assessing property offered as security for a loan.

If the lender’s valuation differs from the contract price, the amount the lender is prepared to advance may be affected.

This is particularly important where a purchaser has:

A high loan-to-value ratio
A limited deposit
Limited additional savings
Changed financial circumstances
Reduced borrowing capacity

Purchasers should not assume that receiving finance approval when signing an off-the-plan contract guarantees that identical lending terms will remain available at settlement.

Loan approval and valuation requirements depend on the lender and the borrower’s circumstances.

Buyers should obtain appropriate financial advice and remain aware of their financing position as settlement approaches.

When Should You Obtain an Off-the-Plan Property Valuation?

The appropriate timing depends on why the valuation is required.

A valuation may be relevant:

Before making an investment decision
During financial planning
Before settlement
When arranging finance
For taxation purposes
For financial reporting
During a dispute
When assessing current market value

For buyers approaching settlement, lender valuation requirements will generally be determined by the finance provider.

For other purposes, an independent valuation may provide useful information about the property’s value at a specified date.

Professional off-the-plan property valuations should always be prepared with a clear understanding of the purpose and relevant valuation date.

What Should Buyers Consider Before Purchasing Off the Plan?

Buying off the plan involves considerations that differ from purchasing an established property.

Prospective buyers may wish to consider:

Developer track record
Contract terms
Settlement timeframe
Deposit requirements
Finance conditions
Potential market movements
Local property supply
Comparable established properties
Proposed development activity
Owners corporation costs
Property specifications

Independent legal and financial advice can also be important before entering a binding contract.

A professional valuation addresses property value but does not replace legal advice, financial advice, building advice or other appropriate due diligence.

What Are Common Off-the-Plan Valuation Mistakes?

Understanding off-the-plan property valuations can help purchasers avoid unrealistic assumptions.

Common mistakes include:

Assuming the contract price guarantees future market value
Assuming property values always increase during construction
Ignoring changes in local property supply
Relying solely on developer marketing material
Comparing properties with materially different characteristics
Ignoring developer incentives when analysing prices
Assuming finance approval cannot change
Failing to consider interest rate movements
Treating automated online estimates as professional valuations
Waiting until settlement to consider a potential valuation shortfall

Buyers should assess off-the-plan purchases based on their individual circumstances and understand that property markets can move in either direction.

Frequently Asked Questions About Off-the-Plan Property Valuations

What are off-the-plan property valuations?

Off-the-plan property valuations assess the value of properties purchased before construction is completed or, depending on the valuation circumstances, after completion but before settlement. The assessment considers relevant property characteristics and market evidence according to the valuation purpose and date.

Can an off-the-plan property be worth less at settlement?

Yes. Property market conditions can change between contract signing and settlement. The property’s assessed value at settlement may be higher than, similar to or lower than the original purchase price.

What happens if my property valuation is lower than the contract price?

A lower valuation may affect the amount a lender is prepared to finance, potentially requiring the purchaser to contribute additional funds. The consequences depend on the lending arrangement, contract and individual circumstances.

Does a low valuation let me cancel an off-the-plan contract?

Not necessarily. Contractual rights and obligations depend on the terms of the agreement and applicable law. Purchasers facing a valuation or finance issue should obtain independent legal advice.

Why do banks value off-the-plan properties before settlement?

Lenders may require a valuation to assess the property being offered as security and determine lending arrangements according to their policies.

Can interest rates affect an off-the-plan property valuation?

Interest rates can influence borrowing capacity and buyer demand, which may affect broader property market conditions. The valuation itself is based on relevant market evidence rather than interest rates alone.

Do comparable sales affect off-the-plan property valuations?

Yes. Relevant comparable transactions can provide important evidence when assessing market value. The valuer considers differences between properties when determining how comparable each sale is.

Can an apartment be valued below the developer’s sale price?

Yes. A professional valuation is an independent assessment based on the relevant valuation date and available market evidence. It does not automatically adopt the developer’s original sale price.

Are developer incentives considered in a property valuation?

They may be relevant where incentives materially affect the nature or effective consideration of a transaction used as market evidence.

Should investors obtain independent off-the-plan property valuations?

An independent valuation may be appropriate where an investor requires an objective assessment for a particular financial, taxation, legal or investment-related purpose. The appropriate service depends on the circumstances.

Need a Professional Off-the-Plan Property Valuation?

Understanding off-the-plan property valuations is particularly important when significant time has passed between signing a purchase contract and completing settlement. Property markets, interest rates, lending conditions and local supply can all change during the construction period, meaning the property’s value at settlement may differ from its original purchase price.

A professional property valuation provides an independent assessment based on the relevant valuation purpose, date, property characteristics and available market evidence.

Asset Valuations Group provides independent property valuation services for a range of financial, taxation, legal and asset-related requirements.

Learn more about our Property Valuation Services or contact Asset Valuations Group to discuss your off-the-plan property valuation requirements.

Why Valuations Matter for Off-the-plan Properties