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What valuation shows the true market value when buying a house? Is it the Capital Value (CV, council valuation), Quotable Value (QV), Government Valuation (GV) or the Rating Value (RV, ratable valuation) that influences the Dollar value a buyer is willing to pay?

 

House and Land Value

What Dollar Value reflects the true Market Value?

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Property values are confusing

 

What Is the property worth is a troublesome question. And unfortunately here is no single answer because even two professional valuers give you different Dollar values. Also the same person as seller, investor or buyer would  set numbers which vastly differ because of the emotional involvement. Obviously the value of a property depends on the purpose of the valuation. Think about a valuation for finance or the “rebuild value (replacement value, rebuild costs)” required by insurers. Yes, that is confusing if you take the politics to influence market values in consideration.

 

Looking at the assessed value, you need to establish a neutral ground between two numbers (or parties) at the time of the enquiry.  Commonly used  by local councils is the Capital Value (CV, also called  council valuation) based on the Quotable Value (QV). The QV points to the so called Government Valuation (GV).

 

To estimate the market value sellers often start with an appraisal (sales appraisal by the sales agent), that is intended to be more of a guide to what the property may fetch if it was sold. Incentives and bias can play a huge role in an appraisals as a sales person has an enormous incentive to please the vendor/seller. Incentives do easily colour people’s perception.

 

 

Valuations for what reason

 

Looking at articles in the media and you will see media commentators have the same problems to understand what value for what. Remarkable is that everybody who operates in the housing market uses self-made figures to back up his estimation.

 

CV—You get the CV from the local council for the reason of the rates assessment (local government tax) and it includes the capital value of the land and the estimation of structures built on the land (house, garage, etc). The councils do that on mouse-click and computer algorithm depending on how much money they need and referring to QVs.

 

QV-  Quotable Value New Zealand is a contracted agency that reviews the values on behalf of the local government. These values are guided by interested parties and based on sales assessments in the region without visiting any of the valuated properties. A shot in the dark.

 

RV - Ratable valuations are done by an engaged valuer on behalf of a property seller, buyer, the bank or somebody who has a financial interest in a property.

 

 

RV –Ratable valuations—Buyer’s and Seller’s compass

 

When negotiating a sales/purchase price the vendor and the willing buyer looking for a number that serves them best to find the highest or lowest price. The RV is a product of an independent and professional opinion mostly trusted.

 

Trusted because; the qualified valuer conducts a property inspection, evaluates the land and building components and looks at recent sales of comparable properties in comparable locations. The RV summarises a number that has no bearing on what the property you want to buy/sell is worth, and what an interested buyer is prepared to pay. Also an updated RV (professional market estimation) can cap the price because people see it as a market valuation, and that can become a psychological barrier for achieving a higher price. That is why the RV is the most trusted compass for buying/selling a property.

 

 

Land value versus House Value

 

Have you ever thought about the key differences of house and land value?  I talked to home buyers who discussed the market value but didn’t know anything about the impact of land ownership and land title.  The land value determines capital growth, council levies and tax. The house value is the basis for estimating the replacement value the owner needs to assess for house insurance reasons (sum insured).  Let us have a look at the impact on market values..

House and Land Value - What Dollar Value reflects the true Market Value?Land values appreciateHouse values depreciate

Land value and improvement value — both figures change independently over time. Land values are expected to increase as the land is limited in supply and raising demand by growing population.

 

In contrast to the land that appreciates is the value of the built structure (house, etc) that depreciates because of wear and tear. In other words if you don’t spend money on your house to keep it in good repair, it will lose its value.

 

 

 

 

 

 

 

 

 

 

 

 

 

With this in mind you do understand that properties with no land attached are lower in value. Good examples are lease-hold properties (ownership without land) and cross-lease properties (owners own the land  collectively). And that leads to the next interesting question — why is it so difficult to assess the value of a property?

 

 

 

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