Commercial finance explained

Commercial valuations: why the number comes back different

A residential valuation usually confirms what everyone expected. A commercial valuation is an argument about income and risk, and it can land a long way from the contract price.

Last updated: 25 August 2026

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The short version

Commercial value is derived, not observed. The valuer estimates sustainable net income and applies a capitalisation rate drawn from comparable sales, then cross-checks against direct comparison and, where relevant, replacement cost. Each of those inputs is a judgement.

That is why the number can differ from the price a willing buyer just agreed to pay. The buyer may be paying for a strategic reason the valuer cannot evidence, or the market evidence may be thin, or the income may not be as contracted as the contract of sale implies.

What the valuer is actually doing

Establishing sustainable net income

Face rents normalised to market, incentives amortised, outgoings and management deducted, a vacancy allowance applied. The result is often materially below the gross figure a vendor quotes.

Choosing a capitalisation rate

Drawn from comparable sales and adjusted for lease strength, asset class and location. A small movement in the rate moves the value a great deal, which is where most of the variance lives.

Cross-checking on comparables

Direct comparison against recent sales. In thin markets or for unusual assets, genuinely comparable evidence may barely exist.

Assessing the lease

Reading the actual document — term, options, review mechanism, outgoings, covenant — rather than taking a rent roll summary at face value.

Noting risk and marketability

Environmental issues, structural matters, specialised improvements, and how long the asset would take to sell. All of it feeds the number and the lender's comfort.

Stating the basis and assumptions

Market value, vacant possession, in-one-line, as-if-complete. Which basis was instructed changes what the figure means.

Why the number comes back low

The recurring causes, most of which are visible before the valuation is ordered.

The rent is above market. Often on a related-party lease, sometimes on a lease written when conditions were different. The valuer normalises it and the value follows.
Incentives were not disclosed. A rent-free period or a fit-out contribution turns a strong face rent into a weaker effective rent.
Short lease term. Income that ends soon is capitalised less generously, and a re-letting allowance may be deducted — see lease covenants and WALE.
Specialised improvements. Fit-out that suits one occupier adds cost and little market value, because the next tenant will not pay for it.
Thin comparable evidence. Regional or unusual assets give the valuer little to anchor to, and caution shows up in the number.
The buyer had a reason nobody else has. An adjoining owner, an occupier who needs that exact site. Real commercial logic, not market value.

Any of these can also delay a settlement, which matters where a date is already driving the deal.

What a broker can do about it

Set the expectation before the instruction, not after the report. A borrower who has been told that commercial valuations move, and why, reacts very differently to one who assumed the contract price was the number.

Give the valuer a complete picture: the lease or leases in full, the outgoings, any incentives, recent capital works, and the rationale for the price. A valuer working from a partial rent roll fills gaps with caution.

Understand who instructed it and what basis was used. A valuation instructed by the lender belongs to the lender, and a report prepared on a different basis or for a different party may not be transferable — which matters when a deal moves lenders.

Plan for the gap. If the value lands short, the answers are more equity, less debt, additional security or a different lender tier, and knowing which one the borrower can actually do is better established early than discovered late. The tier map is in who lends to Australian businesses.

Where La Vitesse fits

We do not value property and we do not verify the values borrowers state. The approximate value and LVR range on an enquiry are the borrower's own figures, which is exactly how they should be treated.

Every commercial finance lead is sold once, to one broker, never resold, delivered in real time, with the mobile confirmed by SMS code before it ships. Pay per lead, no lock-in contracts, no setup fees, and the lead is an introduction, not a recommendation.

Common questions

Why do commercial valuations vary more than residential ones?

Because they are built from estimated income and a capitalisation rate rather than read off a dense set of comparable sales. Small differences in judgement about sustainable income or the right rate compound into large differences in value.

Can a borrower use their own valuation?

Generally not for credit purposes. Lenders instruct their own panel valuers and rely on a report addressed to them. A borrower-commissioned report can be useful for setting expectations, but it rarely substitutes.

What is an in-one-line valuation?

An assessment of what a portfolio or a set of tenancies would fetch sold as a single parcel, rather than the sum of the individual parts. It is usually lower than the sum, and which basis was instructed changes the gearing calculation.

Does a low valuation kill the deal?

Not necessarily. It reduces the debt available, so the deal survives if the borrower can contribute more equity, offer additional security, or accept a smaller facility. What it does reliably is cost time, which is why expectations should be set at the start.

Are the values on your enquiries verified?

No, and they are not presented as though they are. They are the borrower's stated approximate value and LVR range, useful for deciding whether to call, not for anything else.