ANALYSIS: Figuring out how much you should offer when buying a house is tricky, especially true when the property you’re after is going to auction. How low can you go before sellers reject you outright?
Most property sites like OneRoof publish estimated values for individual properties, which buyers and vendors often use as a guide to current pricing in the market.
Buyers looking for help often refer to a property’s rateable value, an estimate councils use when setting rates. Abbreviated to RV or CV, these are included in most property listings and property estimates.
Agents sometimes use them as a reference point when setting expectations e.g. telling buyers or vendors that properties in their area are selling 5% below RV or 10% above RV.
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Some cities rely on RVs more than others. In Wellington, for instance, you’ll see the RV prominently displayed on many listings.
Property buyers pay attention to these numbers but their usefulness varies from region to region. Not every RV is taken on the same date and not every property sells above or below the RV by the same margin.
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For instance, in May, Wellington homes sold on average for 22% below RV. So, if a property in Wellington has an RV of $1 million, there is a decent chance it will sell for around $780,000 – $220,000 less than the RV.
Other towns and cities where properties are selling for below RV include Palmerston North (-14%) and Hamilton (-10%).
However, Opes research also shows that properties in Grey, in West Coast, sold for an average 26% above RV, while properties in Kaikoura and Ashburton came in at 22% above RV.
That doesn’t mean that properties are undervalued in Wellington or overvalued in the Grey. As alluded to above, it has more to do with how and when the RVs were set.
Most councils update their property valuations every three years. If a council only recently updated its valuations, then there is a good chance that these estimates are relatively accurate. The property market may not have moved much since the valuations were set.
But, if the valuations are very old, then the property market could have moved considerably, making those estimates out of date.
Wellington last updated its RVs in September 2021, near the peak of the property market. Since then, property values in the capital have fallen by 21.3%. So it’s not surprising properties are selling for 22% below RV.
Opes Partners resident economist Ed McKnight: "Some cities rely on RVs more than others. In Wellington, for instance, you'll see the RV prominently displayed on many listings." Photo / Fiona Goodall
Interestingly, Grey also updated its property values in September 2021. But since then property values in the local authority have risen 25%. So, it makes sense that properties are selling for 26% above RV.
So, if properties are selling below RV, that doesn’t mean you’ve snagged a good deal. It just tells you that the RVs are out of date.
It also pays to remember that councils don’t put a great deal of thought into their estimates. So, it pays to treat RVs like any other estimate, and to remember they may not reflect the current state of the market.
You’d never go online and look at OneRoof’s estimated value from two-and-a-half years ago and use it as a guide for what to offer on a property in today’s market.
- Ed McKnight is the resident economist at property investment company Opes Partners
