Trying to figure out what a property is worth? Ever wondered whether the RV (or CV) is a reliable indicator of market value? How accurate are E-valuers?
Everyone seems to have an opinion on RV’s and their relationship to market value. But are they meaningful or meaningless?
Let’s take a look.
What is an RV?
RV is an abbreviation for Rateable Value. In a nutshell, it is a figure periodically set by the Council to determine the rates for a property. On your rates notice it is in the My Details section and is referred to as the Capital Value (CV). The latest RV’s in the Auckland Region were released in July 2017.
In Auckland, the Capital Value (CV) and the Rateable Value (RV) are one and the same so you will probably hear both terms bandied around depending on who you talk to.
Note on terminology.
For the purpose of this post, I’ll be using the term RV seeing as I will be referencing and linking through to the QV site and I want to avoid making things more confusing than they have to be.
Here’s how it works:
- Capital Value: based on comparable sales in the area.
- Land Value: based on sales of vacant land.
- Improvement Value: Capital Value less Land Value
- Rateable Value: Land Value plus Improvement Value
Worth noting is that properties are not physically inspected when Rateable Values are determined meaning many things that have a pretty big impact on market value such as amenity, condition, ‘issues’ and aesthetic appeal are not taken into account.
RV’s and sale prices in our local area…
QV offers a handy suburb profile which provides the total number of sales for the last 3 months and the average difference in RV to sale price for most suburbs. Type your suburb into the search bar on their home page and check it out.
These are the QV three month RV to sale price deviations for some of our local suburbs:
- Te Atatu South: -1%↓
- Te Atatu Peninsula: -1%↓
- Massey: +2%↑
- West Harbour: -3%↓
- Hobsonville: 0%
- Whenuapai: –8%↓
- Riverhead: -5%↓
- Kumeu: -5%↓
In practical terms, what does the above data mean? If you are a buyer looking to enter one of these suburbs should these percentages guide your offers? Are you paying too much if you pay more? Or snagging a bargain if you pay less?
If you have a property to sell, are the above percentages indicative of your likely outcome?
Case study: Massey
According to available statistics* there were 23 sales in the greater Massey area in December 2018. Of these:
1 property sold at RV
10 properties sold under RV
These sold between a touch under 1% and 14% below their respective RV’s
12 properties sold above RV
These sold between 3% and a whopping 127% above RV.
127% is huge!! But…
The two highest percentages (127% and 96%) were for newly constructed homes meaning their RV’s were based on Land Value only as their new RV’s were yet to be determined. Interesting how a couple incomplete statistics can end up in the mix and skew your perception, not to mention the averages.
If we take these out for a clearer picture, it was a near even 50/50 split for homes sold above and below RV. With percentages for homes that sold above RVranging between 3% and 23%.
Quite a bit of variation, isn’t there?
It’s easy to see how if you were to rely too heavily on RV’s to provide insight into the market value of a home when buying or selling you could easily either miss out on the right home or the right buyer, overpay or undersell.
*REINZ statistics available at the date of writing this article.
So what are some reliable ways to gauge value?
For sellers, the best way to get an indication of your homes market value is to call in the professionals. You could:
Order a Registered Valuation
Estimated cost: circa $800
Request an appraisal from a Real Estate Agent
I suggest you request appraisals from a couple of firms unless you have an existing relationship with an agent you trust. In theory, all appraisals should come in at, give or take, the same level as all agents will be looking at the same data. If there are major differences between appraisals and explanations you are given are not based on actual or comparable data then get a third to help you ascertain which one is ‘out’.
Order an E-valuation (a word on these later…)
QV’s is $79.95 and can be ordered here. You can also have a look at the free estimates on homes.co.
Make a list of similar properties for sale and visit Open Homes
Get ahold of some statistics and compare online
Don’t know who to ask? Ask me here.
You can save yourself so much time and frustration by requesting some statistics, researching property values online and familiarising yourself with homes that have sold in your desired price range and location before you hit the Open Home circuit.
Arming your self with extra information will help you to refine your geographic search (pinpoint the locations your budget will accommodate), avoid overpaying (who isn’t scared of this?) and give you the confidence to act decisively when you find the right property (critical, especially if you end up competing with other buyers). Want some statistics? Ask me here.
E-valuers are often used as a quick and low-cost way to estimate market value. But how accurate are they?
The excerpt below is from QV’s E-valuer page:
“E-valuers are tested every week against property sales from the last six months. The results show that nationally E-valuer consistently values properties within 10% of the actual selling price over 69% of the time, and within 20% of the selling price for over 93% of properties.”Source: http://www.qv.co.nz
Not bad. But what does that look like in actual dollars and cents?
In November 2018 the average residential value in Auckland was $1,050,647. Using that value as an example, up to 31% of the time an E-Value could be ‘out’ by over $100,000 (up or down) and by over $200,000 up to 7% of the time. Ouch.
As with Rateable Values, a registered valuer has not physically visited the subject property so there are a number of things that an E-valuer will not be taking into account such as:
How well has the home been maintained? Is it in original condition or has it undergone a significant upgrade recently? Are any big ticket maintenance items overdue?
Factors close to the property that may have an impact on market value
Do high tension wires run overhead? Is the property affected by noise from a neighboring club or business? Does the property enjoy expansive views? Is the local gang pad across the road? Does the property offer exceptional privacy for its suburb? Is the property under water half the year due to frequent flooding? Is the property zoned for a desirable new school opening in the near future? How much sun does it get?
Construction and future development
What is the cladding? Are there any era related risks? Have any recalled and/or hazardous products been used in the construction of the home? Have structural alterations been made to the property without the required Building Consents? Are there any restrictions or defects on the Title that need to be considered? Is the property easily subdivisible?
Supply and demand factors specific to the type of property in question.
Do any of the above factors influence market value? Or course they do! Some heavily? You bet.
Do E-valuers have their place? Absolutely. But it is important to recognize their limitations. Use an E-valuer as a starting point and accurately assess values with a combination of your own research and/or consulting a professional.
That’s it from me on the great RV debate!
Getting yourself up to speed with values can be a headache but, if you own a piece of real estate or are looking to sell one, it is well worth the trouble. I hope this article has helped to point you in the right direction.