Property purchase, bank valuation and property types

Understanding property purchase methods, bank valuations, and the different types of residential property in Australia is essential for first home buyers. The decisions you make about how to buy and what type of property to purchase will impact your finances, lifestyle, and future wealth.

Quick summary: This comprehensive guide walks you through the three main purchase methods in NSW and Australia, explains how banks assess property value, and compares different property types to help you make informed decisions when buying your first home.

Three ways to purchase property in Australia

Purchase methods: As a first time home buyer, you'll encounter three primary purchase methods. Each has distinct processes, advantages, and considerations: private treaty sales, auction sales, and buying off the plan.

Private treaty sales

Private treaty is the most common and first-home-buyer-friendly method of purchasing property in Australia. Approximately 70% of residential sales occur through private treaty.

How private treaty works:

• Property advertising: property is advertised with a price guide or price range
• Direct offers: buyers make offers directly through the selling agent
• Negotiation process: negotiations occur between buyer and seller via agents
• Contract exchange: once agreement is reached, contracts are exchanged
• Cooling-off period: buyer has a cooling-off period, usually 5 business days in NSW
• Settlement: settlement occurs 30–90 days later

Advantages for first home buyers:

• Time to arrange finance: you can make conditional offers subject to loan approval
• Cooling-off period: provides a safety net if you have second thoughts
• Condition clauses: include building inspection, pest inspection, or finance approval
• Less pressure: negotiate at your own pace without competitive bidding
• Price negotiation: opportunity to negotiate below asking price

Disadvantages:

• Can be time-consuming if multiple rounds of negotiation needed
• Vendor can accept other offers during negotiation
• May lose property if you don't act decisively

Expert tip: When making a private treaty offer, always include your pre-approval letter to demonstrate you're a serious buyer with finance ready. This strengthens your negotiating position significantly.

Auction sales

Auctions are common in competitive markets, particularly across Sydney, Melbourne, and parts of Brisbane. Understanding the auction process is crucial if you're considering this method.

How auctions work:

• Marketing period: property is advertised with auction date, typically 4–5 weeks marketing
• Due diligence deadline: prospective buyers conduct all due diligence before auction day
• Public bidding: bidding occurs publicly at specified time and location
• Winning bid: highest bidder wins if reserve price is met
• Immediate contract: contract is signed immediately with 10% deposit paid
• No cooling-off: no cooling-off period, sale is unconditional

Requirements before bidding:

• Finance approval: have loan approval, not just an estimate
• Building and pest inspections: must be completed beforehand
• Contract review: solicitor has reviewed all documents
• Bidder registration: register on auction day with ID
• Deposit ready: 10% deposit, usually bank cheque or electronic transfer

Advantages of auctions:

• Transparent process: all buyers compete openly
• Defined timeline: you'll know the outcome on auction day
• Immediate ownership: exchange happens immediately
• Competitive advantage: may secure property in competitive market

Disadvantages for first home buyers:

• Higher pressure environment
• Must have finance before bidding
• No cooling-off period or conditions
• Can end up paying more in competitive bidding
• Risk of getting caught up in auction excitement

Auction warning: never bid at an auction without finance approval. If you're the successful bidder but can't secure finance, you could lose your 10% deposit and potentially be liable for the difference if the property resells for less.

Buying off the plan

Buying off the plan means purchasing a property before construction is complete, sometimes before it's even started. This method has unique considerations for first home buyers.

How off-the-plan works:

• Purchase basis: purchase based on plans, specifications, and display suites
• Initial deposit: pay 10% deposit at contract signing
• Extended settlement: settlement occurs when construction completes, 12–24+ months
• Property variations: final property may vary slightly from plans
• Preparation time: extended time to save additional funds or watch market conditions

Advantages for first home buyers:

• Smaller initial outlay: more time to build deposit after paying initial 10%
• New property benefits: qualify for First Home Owner Grant worth $10,000
• Modern features: brand new with warranty and latest fittings
• Customisation options: often can choose colours, finishes, upgrades
• Stamp duty concessions: may pay duty on land value only, not final value
• Capital growth potential: property may increase in value during construction

Risks and disadvantages:

• Market fluctuations: property value may decrease during construction
• Construction delays: settlement can be postponed months or years
• Developer insolvency: risk if developer faces financial difficulties
• Sunset clauses: contract may terminate if not built by specified date
• Bank valuation risk: final value may come in lower than contract price
• Defects: new builds can have issues requiring rectification

Understanding bank valuations

Critical knowledge: one of the most critical, and often misunderstood, aspects of purchasing property is the bank valuation process. This can make or break your property purchase.

What is a bank valuation?

A bank valuation is an independent assessment of a property's market value conducted on behalf of your lender. The bank uses this to confirm the property is worth what you're paying, determine how much they'll lend you, assess the property as security for the loan, and protect themselves against lending more than property value.

Important: the bank valuation may differ from the purchase price or your own perceived value.

How banks value properties

Bank valuers use several methods to determine property value:

Comparative market analysis (most common):

• Review recent sales of similar properties in the area
• Typically look at sales within last 3–6 months
• Adjust for differences in size, condition, features
• Consider current market conditions and trends

Property inspection:

• Physical condition assessment
• Building quality and construction type
• Location factors including street, views, proximity to amenities
• Land size and potential
• Any issues or defects noted

Market conditions:

• Current supply and demand in the area
• Economic factors affecting property values
• Local development and infrastructure
• Buyer competition levels

What happens if the valuation is lower than purchase price?

This is called a "short valuation" and it creates challenges for first home buyers.

Example scenario:

• Purchase price: $850,000
• Bank valuation: $820,000
• Shortfall: $30,000

Your options:

• Increase your deposit: make up the $30,000 difference yourself
• Renegotiate purchase price: use valuation as evidence to negotiate lower price
• Seek second valuation: some lenders will allow this, fees apply
• Find alternative lender: different banks may value differently
• Walk away: exercise cooling-off rights if available

Strategy tip: understanding Loan to Value Ratios (LVR) helps you anticipate valuation issues. If you're buying at the very top of your budget with minimal deposit, a short valuation can derail your purchase.

Desktop valuations vs physical inspections

Desktop valuation:

• Valuer assesses based on data and photos only
• No physical inspection of property
• Faster and cheaper for lender
• More common for established properties in stable markets
• May miss property-specific issues

Full (physical) valuation:

• Valuer physically inspects the property
• More thorough and accurate assessment
• Required for higher-risk loans or unusual properties
• Takes longer to complete
• Typically required for construction, rural, or unique properties

Types of residential property in Australia

Property types explained: understanding the different property types is essential when deciding what to buy as a first home buyer. Each type has different ownership structures, costs, and considerations.

Freestanding houses (Torrens title)

Freestanding properties are standalone houses on individual blocks of land with Torrens title ownership.

Ownership structure:

• You own both the house and the land it sits on
• Full control over property decisions
• No body corporate or strata fees
• Complete privacy and independence

Advantages:

• Complete control: make renovations without approval
• Privacy: no shared walls or common areas
• Land ownership: land typically appreciates over time
• Outdoor space: private yard, garden, parking
• Future potential: subdivision, granny flat, extensions possible
• Family-friendly: space for children and pets

Disadvantages:

• Higher purchase price: more expensive entry point
• Maintenance responsibility: you handle all repairs and upkeep
• Ongoing costs: council rates, insurance, maintenance
• Time commitment: garden and property maintenance required
• Location trade-off: often further from CBD for affordability

Best for: families, long-term ownership plans, those wanting complete control, buyers seeking renovation or subdivision potential, pet owners

Strata title properties (apartments and townhouses)

Strata properties include apartments, units, and townhouses where ownership involves both individual lots and shared common property.

Ownership structure:

• You own your individual lot, such as apartment or townhouse
• Common areas are jointly owned, including lobby, pool, gym, gardens
• Owners corporation manages building and common areas
• Must follow by-laws and building rules
• Pay quarterly strata levies for management and maintenance

Advantages:

• Lower entry price: more affordable for first home buyers
• Shared amenities: pool, gym, security often included
• Less maintenance: building exterior and grounds managed for you
• Better security: secure building access, CCTV, intercom systems
• Location advantages: often closer to CBD and transport
• Lock and leave: ideal for travellers or busy professionals

Disadvantages:

• Strata fees: ongoing quarterly costs, $1,000–$5,000+ annually
• Special levies: may be charged for major repairs or improvements
• Renovation restrictions: need approval for many changes
• By-law compliance: rules about noise, pets, parking, renovations
• Less privacy: shared walls, neighbours above or below
• Committee decisions: building matters decided by committee votes

Important checks for strata properties:

• Review strata report including financial position and upcoming works
• Check sinking fund adequacy for future repairs
• Read by-laws carefully, including pet restrictions and parking rules
• Assess building condition and maintenance history
• Review meeting minutes for disputes or issues

Best for: first home buyers seeking affordability, singles or couples, those wanting low-maintenance lifestyle, inner-city living preferences

Vacant land and land for construction

Purchasing vacant land or land for construction allows you to build your dream home from scratch.

Types of land:

Vacant land (land banking):

• Purchase land as investment
• Build when finances allow or market conditions are right
• Hold for capital growth
• Lower entry cost than built property

House and land packages:

• Developer offers land with pre-designed house
• Fixed price for combined package
• Limited customisation options
• Typically in new estates
• Can qualify for government grants for new builds

Custom build on your own land:

• Maximum flexibility in design
• Choose your own builder
• Higher costs but personalised result
• Longer timeline to completion

Advantages of building:

• Design freedom: design your dream home exactly as you want
• Brand new: everything is brand new with warranties
• Energy efficiency: modern, energy-efficient features
• Government grants: qualify for First Home Owner Grant worth $10,000 for new builds
• Stamp duty savings: potential stamp duty savings on land value only initially
• No repairs: no immediate renovation or repair costs

Disadvantages and challenges:

• Complex finance: requires construction loan with progressive drawdowns
• Longer timeline: 12–18 months from purchase to moving in
• Building process stress: managing builder, selections, inspections
• Cost overruns: variations and extras can blow budget
• Council requirements: approvals, regulations, restrictions
• No rental income: can't generate income during construction

Finance considerations:

• Construction loans release funds in stages as building progresses
• Interest-only during construction, principal and interest after completion
• Requires detailed building contract and plans
• Bank conducts inspections at each stage before releasing funds

Best for: buyers wanting customisation, those eligible for FHOG, buyers in growth areas where land is available, families planning long-term stay

Get expert guidance today

We help first home buyers across Baulkham Hills, Gladesville, and all of Sydney understand property types, arrange appropriate finance, and navigate valuations successfully.

Book consultation Call: 0426 002 202

Matching property type to your situation

Decision framework: when deciding which property type suits you best, consider your budget and deposit, lifestyle needs, time horizon, maintenance capacity, and location preferences. Your budget and circumstances will guide your choice.

Considerations for first home buyers

Budget and deposit:

• Strata properties generally offer lowest entry price
• Freestanding houses require larger deposits
• Land and build requires deposit for land plus construction finance

Lifestyle needs:

• Do you need space for children or pets? Freestanding house may suit
• Want lock-and-leave convenience? Strata property is ideal
• Desire complete customisation? Build your own home

Time horizon:

• Planning to stay 10+ years? House or build may suit
• First home as stepping stone? Strata may be practical
• Can wait 12+ months to move in? Build is feasible

Maintenance capacity:

• Comfortable handling repairs and maintenance? House ownership suits you
• Prefer managed maintenance? Strata property is better
• Want brand new with warranties? Build your home

Frequently asked questions

What's the difference between a bank valuation and a building inspection?

A bank valuation assesses the property's market value for lending purposes, whilst a building inspection examines the physical condition and identifies defects. Both are important, but serve different purposes. The bank valuation determines how much they'll lend you, whilst the building inspection protects you from purchasing a property with hidden problems.

What happens if the bank valuation comes in lower than the purchase price?

A short valuation creates a funding gap that you must address. Your options include increasing your deposit to cover the shortfall, renegotiating the purchase price using the valuation as evidence, seeking a second valuation from a different bank, finding an alternative lender who may value differently, or exercising your cooling-off rights to walk away from the purchase if available.

Should I buy an established home or build new as a first home buyer?

This depends on your priorities, budget, and timeline. Established homes allow immediate occupation and you can see exactly what you're buying, but may require renovations. Building new offers customisation, modern features, the $10,000 First Home Owner Grant, and potential stamp duty concessions, but requires a longer timeline, 12–18 months minimum, and involves construction loan complexity.

What are strata fees and how much should I expect to pay?

Strata fees, also called body corporate fees, cover the management and maintenance of common areas, building insurance, shared amenities, and the building's sinking fund for future repairs. Expect to pay anywhere from $1,000 to $5,000+ annually depending on the building's age, amenities, and location. Newer buildings with pools, gyms, and concierge services typically have higher fees. Always review the strata report before purchasing to understand the financial health and upcoming expenses.

Can first home buyers use the Home Guarantee Scheme for any property type?

Yes, the Home Guarantee Scheme can be used for established homes, newly built homes, and house-and-land packages, provided they meet the scheme's price caps for your region. The scheme allows eligible first home buyers to purchase with just a 5% deposit without paying Lenders Mortgage Insurance. However, construction-only loans aren't covered – you need to purchase land or an established property.

Take the next step

Understanding purchase methods, bank valuations, and property types is just the beginning. Contact our team to arrange appropriate finance and successfully navigate your first property purchase.

Ready to start your property journey?

Book consultation Call: 0426 002 202

📧 Email: hello@buyvest.com.au

Related resources for first home buyers

• Buying your first home? 6 key things to know – learn the essential steps to navigate the property purchase process confidently
• Pre-approval to home ownership – step-by-step guidance from mortgage pre-approval to owning your home
• Pathways to home ownership – navigate loans, grants, valuations, and budgeting with expert advice
• First home buyer deposit options – explore guarantor support, government schemes, and LMI options
• Lenders Mortgage Insurance guide – how LMI works and buying sooner with smaller deposits

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Important stuff:

Please note that the views and opinions expressed in this post are general information only, and this is not financial advice.

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