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Valuation is based on can the bank recoup their money on that property at auction if you default on it.
It really isn't.
It's an open market valuation.
An auction sale valuation on a 'normal' owner-occupier property is usually very different to open market, often 20% lower. Lenders wouldn't do much business if they only lent on auction figures.
Hefty
They are agreeing a value based on price agreed and saying whether it represents value for the lender. The condition of a property will of course reflect value but not by a huge amount. It doesn't matter how nice a property is or what fixtures and fittings are in it. Valuation is based on can the bank recoup their money on that property at auction if you default on it. The swing will not be 40k