The Relationship Between RV and the Market Value of a Property

Barry Fredheim

One of the enduring features of discussions with property vendors is they want to talk about their RV, whereas my focus will be on what level they can expect the market to value their property at, at that specific time.

Tauranga’s new RVs have come out recently and most have seen considerable rises in what is perceived as the value of properties.

But I urge caution.

The key is in the name.

Government Valuation (GV) then became Capital Value (CV) is now called Rateable Value or Rating Value (RV) and is a valuation mechanism used by councils as a guide in setting rates.

It is not designed to give a true market valuation of a property. Using the RV to gauge the value of an individual house would be akin to using a set of scales to measure the length of a house. It is a measuring device but just not the right one.

To get to an RV, valuers use a mass appraisal method that considers fair market sales and sales histories across whole neighbourhoods at the time of valuation.

And that is a key point; RVs are snapshots fixed at a specific date whereas the property market is dynamic and always changing. Using a mass appraisal method, trends for like-properties within the same areas can be developed, but because the method doesn’t look at the condition of each property or look closely at the improvements, the method can only produce broad generalisations.

If two houses side-by-side are similar in design, size and age, but one is tired and has not had maintenance carried out it will, generally speaking, have a lesser market value than its neighbouring property that has modernised bathrooms and kitchen, modern fixtures, its gardens are attractive, and the place looks clean and loved.

But that difference won’t be reflected in the RV.

The best way for people to get a sense of true market value is in the selection of their agent.

My advice is to ask questions designed to gauge how much they know about market conditions, about specific areas, and value of recent sales. See what ideas they suggest about what could be done with a property.

I have been involved with real estate in Tauranga for 19 years so I know from personal experience it takes time to get a sense of how the market moves and what stage it is at.

There are some tangible determinants of true market value such as location, level of maintenance, compliance with council rules, potential for development, ambiance of the neighbourhood, and age and value of surrounding residences. Use RVs with care, they will only tell one part of the story.

By Barry Fredheim – “I write for Bay Waka to support our local property vendors.”