Relevance of capital valuation debated

The use of  capital value (CV) as a measurement of what homes may be worth is a grey area for both  sellers and buyers and  most real estate agents see  little relevance in CV data.

Even Quotable Value (QV), which is  contracted to undertake  three-yearly valuations for 85%-90% of councils nationwide, said CVs were quickly outdated and a registered valuation was the best value indicator.

With escalating house prices in Dunedin and Central Otago, the relevance of using CV as a guideline is  hotly debated  — especially when some house prices have doubled since the last CV was done in 2016.

Quotable Value’s setting of capital values gives a combined building, land and improvement value.

In Dunedin recently, some council CVs have  been eclipsed by  prices paid, by  as much as  $100,000.

Quotable Value general manager David Nagel was contacted and asked about CVs relevance and purpose.

He said the intended purpose of the CV was to be used by  local authorities to levy rates.

"The CV is a snapshot of the likely selling price at the date of valuation, excluding chattels.

"However they [CVs] date quickly, particularly in a moving market, and have less relevance to the potential selling price of a property the further time passes from the date of valuation," he said.

That advice applied equally to both sellers and buyers.

Cutlers owner John Cutler believed CVs only gave a "rough guideline", given the timeframe in which they were reviewed.

"CVs serve their purpose, as a rating mechanism," he said.

Metro Realty managing partner Mark Stevens agreed prices well above CV were being achieved and counselled sellers not to use the council’s CV for assessing house values.

He had seen instances of retiree sellers expecting $300,000, based on their CV, whose  properties went on to sell for $500,000.

QV senior consultant Paul McCorry said a valuation report by a registered valuer provided "the most robust indication" of a property’s value.

"It’s current to the market conditions and is inclusive of chattels such as carpets, curtains etc.

"It is a useful indicator of a realistic price that could be achieved for the vendor, and often it is required by the purchaser for mortgage lending purposes,"he said.

CVs are partly computer modelled and done without a valuer entering the property or house.

Mr Stevens asked "Who can say they had a valuer knock on their door last week ...  in the last few decades?". Mr Nagel said QV used a combination of property inspections, when requested by the property owner to reassess a value, plus computer algorithms to assist with the assessment.

The system called Mass Appraisal was an internationally accepted approach for rating assessment, he said.

Metro’s Mr Stevens said recent sales of two identical, neighbouring properties in a coastal Dunedin suburb showed they shared the same CV, although one was redeveloped inside and the other was still internally in near-original 1940s condition.

"The [actual sale price] difference was at least 30%."

Historical house sale data of one suburb might suggest an overall 20% gain, which was then applied by QV suburb-wide, without any visits taking place.

While encouraging sellers to get a valuation, Mr Stevens conceded few were being done at present by prospective buyers as the time lag could see them miss out on being able to make an offer.

Harcourts Dunedin manager and auctioneer Richard Stringer said when CVs were last set in July 2016, Dunedin’s median dwelling value was $323,000.

It was now $430,500 — a 33% lift in median value since 2016."So it makes sense that CVs could be well behind today’s market value," he said.

Dunedin regional spokeswoman for the Real Estate Institute of New Zealand Liz Nidd said she was "often surprised" when appraising a house, which then went on to sell well above CV.

"I’ve seen plenty of people pleasantly surprised by the [eventual] sales price," she said.

simon.hartley@odt.co.nz

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