Why Government Valuations Aren’t a True Reflection of Market Value

The latest G.V.’s are out. Here’s some information to help understand them.

Legal Framework – Assessing GV’s

In terms of NZ statute law, a local territorial authority (Auckland Council) has the responsibility of preparing and maintaining the district valuation roll data for the Valuer General. The Valuer General under the Rating Valuations Act 1998 is empowered to provide individual Government Valuations for each property on that District Valuation Roll once every 3 years.

The purpose of this valuation is to create a basis for paying rates for Council under the Local Government Act.

There is provision and a set period to object to a Government Valuation either up or down, with the onus of proof on the land owner to provide evidence that the assessed Government Valuation amount is not in line with market value, or if there is a rates postponement due to a different land use. Objections need to be lodged within 6 weeks, that is by 16th January 2018.
 

How are GV’s Assessed?

Traditionally, the former Valuation Department carried the responsibility of updating records of each property within the district roll, where each property was physically inspected once every 3 years and recording any changes to the properties such as alterations, additions or renovations. Of course there are not the time nor financial resources to complete such inspections now and the process has changed to a computer generated mass appraisal system and methodology. Accordingly, Government Valuations have become more and more inaccurate over time.

This has been exacerbated by landowners whom may have side stepped the building consent process where unauthorized works may have been completed & records are not updated.

So how are Government Valuations Assessed every 3 years?

The methodology is relatively simple, whereby the land value apportionment is assessed on an “Unimproved Value” – that is, as if no improvements have been made on the land. If the dwelling spans the title, then they will often value the land content high due to the properties potential of being subdivided if the dwelling was not in place. Accordingly the improvements percentage can be ridiculously low or a nominal value.

The value of improvements is calculated based on building industry accepted replacement costs, depending on size and quality of construction materials used. Then an allowance for depreciation or obsolescence is applied due to dwelling age to provide an added value figure. The summation of both land value and improvement value equals capital value which is the figure upon which the rates are struck. (North Shore used to be rated on Land Value).

The capital values are then arbitrarily indexed up or down by the average percentage gain (or occasionally loss) in the immediate street and wider neighbourhood based on sales records in the preceding 3 years. The computer then spits out the new G.V.

Inaccuracies happen over time. Floor areas can be wildly inaccurate and also G.V.’s do not include chattels (carpets, light fittings, drapes, dishwashers etc) – often resulting in a slightly lower figure compared to a property’s true market value.

As a general rule, G.V.’s are often on the low side, however this does depend on whether market values have increased or decreased since the effective date of valuation and variance factors stated above.
 

So how has your latest G.V. stacked up ? 

Effective 1st July, some suburbs G.V.’s appear to be slightly high now in relation to the slowing real estate market, whilst a number of suburbs the GV’s are on the low-side to the tune of 5-10%.

Sometimes buyers will ask:  What is the latest G.V. for properties that we are selling?  This is to provide some sort of guide, particularly if the property is being sold without a price guide, such as with Auction. 

The more reliable way for buyers to gain an accurate perception of market value is to complete their own market research by attending open homes and auctions.

A well informed real estate agent should be able to provide a list of recent sales in the area, as they must provide an owner with a comprehensive written market assessment prior to listing the property on the market. This is law under the Real Estate Agents Act 2008. Alternatively an independent Registered Valuer can be engaged.

Naturally if you would like any more information about G.V.’s or market values in your area, please do not hesitate to call or e-mail me.

WRITTEN BY CHRIS GEMMELL