COMMENT: Over the past 12 months there have been few weeks where we haven’t been confronted with at least one media story about a house which has sold for significantly more than the CV. Such stories are usually framed in that same incredulous tone that we otherwise only reserve for Lotto winners and people who are stuck by lightning and survive – often accompanied by a journalistic narrative which straddles shock and mild contempt that a property could sell for so much more than it is actually worth.
But who determines worth?
“The CV does,” you might reply – and you’d be wrong. Despite being used, by media, as some sort of indisputable guide to the value of real estate, inscribed in stone, the humble CV (which is actually more accurately referred to as the RV or rateable value) isn’t, and never has been, a reliable guide to the value of your home. The RV is a measure, assessed by your local Council once every three years, to provide enough of a guide to set fair rates for homes in your neighbourhood. Nothing less, nothing more. It’s a broad snapshot of a moment in time (which could be as long as three years ago) and it isn’t, and doesn’t purport to be, a measure of your homes actual value.
Despite this, media, commentators, and the real estate industry continue to use the CV/RV as a guide – probably because it has, until recently, been the only universally accessible measure of value which is available to them.
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But if it isn’t accurate how can you find out what your home is really worth? After all, for many of us the value of our home at any given point of time is important. For some, that interest is purely out of curiosity. For others, it’s a reflection of how close – or far – we might be to our retirement dream. For yet others, it’s a measure of our ability to borrow, against the house, for anything from an overseas holiday, to a business, or even to buy another property.
In particular, most of us are interested to know how much ‘equity’ we have in our home, which is simply a measure of the difference between how much the house is worth and how much of that we owe to the bank. The difference - the equity – is the bit that we own.
So is there an accessible way to find out what your home is worth? Several – although only one of them is 100% accurate:
1. If you’re the outgoing type, or you know your neighbours well, you could wait till a similar house to yours sells in the same street and simply ask the vender how much it sold for. The effectiveness of this approach is limited because values can be quite different, even in nearby streets, and because most people probably won’t feel comfortable disclosing such information, even to friends.
2. You could use any one of several online valuation tools which provide an estimate of your homes value at any given point in time - and most of these will also tell you what your neighbours home sold for – albeit a few months down the track. These tools still use council RV data – but the better ones enhance it with actual sales information from your area and apply their own methodology to arrive at, what can sometimes be, a pretty good estimate. This is actually a variation of the same tool that most banks now use to assess the value of most properties when assessing a mortgage – but their weakness is in the huge variations in estimated valuations that different platforms can provide for the same property. In Auckland, that difference can be over $200,000 on a property worth $1.5 million, making a mockery of such estimates. If your interest is largely just curiosity, this is the tool to use.
3. You could get a formal valuation completed by a valuer. This was once the only way to get an up-to-date valuation on a house and was required by most banks as part of the mortgage process – but times have changed and they’re now the exception rather than the rule. Generally, a formal valuation will provide a pretty good guide to what your home is actually worth – although it comes at a cost and some valuers are unreasonably conservative in their assessment – so it’s a bit of a balancing act.
All of these methods have their strengths and weaknesses and will provide you with a useful guide – but there’s only one way to get an absolutely accurate handle on what your home is worth – and that, as has always been the case, is to sell it.
- Ashley Church is a property commentator for OneRoof.co.nz. Email him at ashley@nzemail.com
