Licensed Salesperson - REAA 2008

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This has got to be the most common question asked at the moment – and the short answer is – it depends - on so many different factors. And even in the most bouyant market, not all homes sell over their RV. Why?

So lets start with what an RV is?

Thankfully it is no longer called a GV (Government Valuation) because this implied and reinforced the myth that it was in fact a valuation. It is called an RV (Rateable Value) because it is there to give the local council a Value upon which to charge Rates.

How is it calculated?

The Council undertakes a mass appraisal valuation exercise comparing recent sales in an area to the property being valued.

The Council holds information for each individual property such as property type, location and land size, zoning, floor area, consented work, and other factors. It is worth noting that no-one visits the property to do this. And therefore not all factors are considered - for example, work carried out that didn't require a consent, maintenance done (or not), redecoration, landscaping, chattels and appliances.

The council are very clear that the revaluation process is not done to provide values for property owners - for marketing, sales or any other purposes. It is done primarily for rating purposes and the Council are required to do this by law.

A simple example

Two 1950’s homes next door to each other appear almost the same on paper (same land size, floor area etc) and therefore have the same RVs. One has been in the same ownership for 50 years. Next door has had several owners in that time. The council see the sales results for one and put a similar RV on the other. But one is pretty original, has had nothing done to it in 50 years, and has a lot of deferred maintenance so looks and feels really shabby. The other has had constant renovations and upgrades (no consents required so the council doesn’t know), lovely landscaping, new roof, regular maintenance etc etc. Are they worth the same? No of course not.

One will probably sell over its RV – the other may sell way under. Or the other way around depending on what the council were basing their figures on to begin with.

So what is market value ?

The industry definition is -

Market Value is the most probable amount that a willing and informed buyer will pay and a willing and informed seller will accept for a property in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus.

In plain speak

So many variables create the eventual sale price for any property. Timing plays a big part – and so does competition - what other properties are on the market at the same time that your property might be competing with, the number of buyers that are looking for a home like yours and how strong their motivation is. Also in play can be global and national financial conditions and predictions, interest rates and so on.

A couple of recent sales

I recently sold a house for 43% over its RV ($177,000 in dollar terms) , and another for 32% over RV (+ $316,000). Clearly neither RV reflected market value. But the percentages didn’t reflect dollar amounts either. Both were in excellent condition and beautifully presented – both attracted large numbers of buyers and a dozen or more offers. Registered valuers were used by buyers for both properties and for both properties their professional valuation was not too far off the eventual price – but in both cases, still $30 - $80,000 lower. Percentage wise they were close – but the difference is a lot of money.

How can this be? What a real estate agent or a valuer can’t assess or predict is the emotional factor of the buyers involved on the day, what they are comparing the property to (often in other areas) and how much they want the property – especially if they have missed out on several other properties they wanted. All of these factors can make a big difference to the eventual price.

What is very important is what happens when buyers come to a property, how confident they are with the process and the information they get and how determined the agent is to get the very best price possible. That’s when a good agent really earns their commission.