Is the CV a good way to measure property value?
I don’t think the Capital Value of a property is a very good way to measure a property’s value. I would describe a CV as a very rough guideline. Firstly let’s look at what a CV is.
Formerly called Government Valuations (GVs), council rating values (RVs) are compiled by statute, under the Rating Valuations Act 1998, mainly as a uniform basis for levying local and regional council rates. They are impartial and independently assessed, usually every 3 years, as at the same date for every property in a Local Council.
A council rating value (RV) comprises three main components:
The assessment of the probable price that would have been paid for the property if it had sold at the date of the last general revaluation. Capital Value does not include chattels, stocks, crops, machinery, goodwill or plantation trees. It’s made up of two components, Land Value and Value of Improvements.
The probable price that would have been paid for the land alone as at the date of valuation. The land value includes any development work which may have been carried out such as; draining, excavation, filling, retaining walls, reclamation, grading, levelling, clearing of vegetation, fertility build-up, or protection from erosion or flooding.
Value of Improvements
This is the difference between the capital and land values. It reflects the additional value given to the land by any buildings, other structures or cropping trees and vines present on the property, and any landscaping that adds value to the land.
Why should a CV be used only as a guide?
- They are done every 3 years and markets can change quite dramatically during this time. For example given how strong the Auckland property market has been in the last year or two the CVs can be vastly different from what properties sell for.
- CVs are often done from the office using the analysis of data rather than physically visiting the property and looking inside. There could be two properties in the same street that from the outside appear the same and have similar CVs but one has had a significant renovation inside which would change the value.
- The true value of a property is based on supply and demand and what a willing buying is prepared to pay a willing seller.
- Banks rarely use a CV and instead want a registered valuation.