CVs explained: What are they good for?

Every three years, a letter from the local council plops into people’s mail boxes, setting off a storm of boasting over the fence to neighbours – or protests and objections to the council. It’s ratings valuation time.

But that number is not money in the bank for homeowners. Your local council sets your valuation, also known as the CV or RV, for one reason: to help calculate what share of rates you will pay. It’s not what your house is worth if you sold it today, or what the bank would rely on for lending money.

CV calculations are based on all sorts of thing – the type and size of property, location, the size of the land, the zoning and the consented work – at a particular point in time. They’re calculated by registered valuers, who analyse recent sales and compare and contrast similar properties, using a combination of technology and experience.

Sometimes that means external checks of some urban properties, and or inspecting recently sold properties or those with recently completed building consents, but they don’t view every property in person.

James Wilson, Valocity’s directorof valuation innovationsays that councils have always – since the 1800s, in fact – used a value to determinehow to apportion rates to a homeowner.

“Historically these have varied between councils, sometimes rates wereonly set based on the land value for example, sometimes on improvements values,”he says. “The Rating Valuation Act 1998 requires a consistent approach to betaken by all territorial authorities, which is based on capital value.”

While the CV is stated as the most likely selling price at the date of valuation, and land values are most likely selling price of bare land, in a dynamic market these valuations are not the actual market value of any individual property on the day. By law, valuations are updated every three years, but a valuation done in mid-2017 (as in Auckland) or even last year (Wellington CVs, for example, were updated September 2018) is not a market assessment or appraisal.

In some council areas – Dunedin, Hutt City, Porirua, Christchurch and others – where valuations are being updated this year, current CVs are based on market conditions over three years ago, so are a long way off today’s market.

That market valuation can only be determined by a full assessment by a registered valuer, usually with on-site and internal inspection that takes into account property upgrades or improvements.

Registered valuers must meet the standards enforced through the Valuers Act 1948, be a member of the New Zealand Institute of Valuers (NZIV) be registered with the Valuers Registration Board which has strict specifications for degrees, work experience, entry exams, and annual professional development. For many legal documents and lending institutions, a registered valuation, not a CV or market assessment, is the only figure accepted.

A valuer looks at all the comparable sales, comparing things like age, size, condition, location and the land figuring out where the value lies between superior or inferior properties. This takes into account the rapidly changing market for a particular property in a particular neighbourhood at a particular point in time.

“So when assessing a land value, a registered valuer considers what is referred to as the highest and best use of the land,” explains NZIV’s president, Jeff Alexander.

In some cities the valuation may have changed because land under, say, a single family home has been up-zoned for more density, or changed use from residential to business or mixed use zoning, or have moved inside or outside a rural-urban boundary.

“This involves researching the market to see what type of activity is happening in that locality. Ultimately, valuers ask themselves the question ‘realistically, who is the most likely type of purchaser (ie. a developer, owner-occupier or investor) and what would they do with the land?’”

Alexander emphasises that the market for property can be very dynamic, so the highest and best use of land in the past may not be the highest and best use today.

And, despite that not being their intended use, CVs have become a proxy for guessing sale prices of a property.

Valocity’s Wilson says such figures have existed for decades “and when they do they ALWAYS become a yardstick, he says.

"Interestingly, many states of Australia opt not to make such figures visible to the market in certain circumstances to avoid them being used a yardsticks.”

That’s where a real estate agent comes in, supplying a current market appraisal. That might include a combination of on-line valuation models, current sales data and the agent’s own knowledge of the area and the buyers active in the market. In particular, they’ll know exactly how recently sold properties compare to your own property - their size, condition, how much demand there is in the area for your sort of property and recent experience.

This may vary from agent to agent, and is then modified as buyers check out the house and offer their own views on what they’d be prepared to pay.

As always, the real indication of a property’s value is what a willing buyer will pay for it at the time that it is on the market.