We think it’s a case of buyer beware. Do your homework – and make sure that your real estate sales person has done theirs. As a prospective buyer or vendor you should be provided with research by your salesperson that shows figures for recent sales in the neighbourhood to give you a realistic appreciation of the price the property might sell for. Or, get your own independent valuation by an independent registered valuer. This can result in higher loan approval if the home calculator web-site is off the mark.
We’ve observed over the past 12-18 months that a number of these websites have been developed to give buyers and sellers a quick estimate of the current market value of their Auckland properties. Unfortunately these calculations can not be relied upon to provide realistic market prices of a property to all buyers and vendors. Although these sites have their own formulae for calculating value through applying a number of factors, most of them use the Government rating value as the underlying determinant as a base for their calculations.
In the past Government Valuers carried out individual property inspections and updated property records on a three-yearly basis. However in the last decade or so, this has not been the case. Instead Government have adopted a computer-generated mass appraisal system to assist the Valuer General assess all properties on the rating roll for local Council’s to calculate and formulate their rating income. However, many prospective buyers and sellers rely on the ‘G.V.’ (now referred to as the Rating Valuation) of a property and still expect it to be an accurate indicator of value. But what people often don’t realise is that the Rating Valuation is calculated primarily to establish rates. It’s not designed to provide buyers and sellers with an accurate guide on the market value of properties.
Rating valuations can be high or low. There doesn’t appear to be a common pattern across North Shore property values. The value of the land apportionments are often higher than in previous assessments because the new Unitary Plan has been taken into account. The land value is calculated as if no improvements have been made on the title, even if the home spans the section with little or no practical room to subdivide. This can be confusing with minimal value apportioned to the dwelling or other improvements. Chattels are also not included in RV’s, such as carpets, light fittings, curtains, rangehoods, heat pumps etc.
We’ve had an instance over the past month where we’ve sold a property at auction for $230,000 more than its July 2017 rating valuation. This equates to an additional 27 per cent.
The home estimation websites were showing a dramatically lower value for this property, due to the R.V. being used as a basis for the calculation. We found that this was misleading for prospective buyers whom were keen on the property and were trying in good faith to work out its likely market value before auction. Unfortunately banks are also using these home value calculator websites as a tool for approving finance prior to an auction.
To assist the process, we provide prospective buyers with records of recent sales in the area to help them gain a more realistic estimation of the property’s market value.
These records can also assist their bank approve a higher loan amount so they are ready to make realistic offers at auction, rather than ‘clutching at straws’ and missing out. It can be very frustrating and disappointing for a potential buyer if they’re not even in the right ballpark to make an offer when the auction bidding starts.
Real estate sales agents have a responsibility to provide buyers and sellers with research that shows recent sales patterns in the area and current property market value trends. Competent agents should know values in their area they specialise in and under our Act it is a requirement that they supply prospective sellers a written current market assessment report which confirms their opinion of value range and where possible contain credible sales evidence.
So in short, sellers and buyers, do your homework. Ask for sales evidence in the area. Don’t rely on home calculator websites that can potentially be inaccurate in estimating property values.
Chris Gemmell is a registered non-practising valuer, with over 30 years’ experience in the real estate industry, primarily on Auckland’s North Shore. This has given him an in-depth knowledge of what constitutes value for properties located on the North Shore.