Here’s what CVs mean for your rates and your property

Auckland Council’s new property valuations are out, and they show values have gone up across the city. But there are some common misconceptions around what that means.

One is that if your property’s capital value (CV) has increased, it will automatically lead to an equivalent increase in rates. Another is that the CV represents the market value of a residential property. Neither is true.

Here, we have the answers to the questions most commonly asked when homeowners receive their rates notices.

Do rates go up because of property price increases?

No. Rates are driven up by the increasing costs to councils of providing services, such as libraries, parks, emergency management and street cleaning, and maintaining or upgrading key infrastructure, such as roads and water pipes and drains.

But rates are charged to households based on property values and, as values change over time, every three years councils are required to revalue everyone’s properties and update their CVs.

Auckland Council finance and performance committee chair Desley Simpson says revaluation does not change the amount of money the council collects from rates.

Rather it helps make sure the rates requirement is being shared fairly between properties as valuations move across the city, she said.

“If you think of the budget like a pie, that pie doesn't get any bigger because of revaluation. Your property’s value just determines the portion of the pie that you're going to pay and ensures your portion is the same as others whose properties are valued the same as yours.”

How do councils work out the CVs?

Councils work with valuation companies, such as Quotable Value, to determine properties’ rateable value.

Rateable values are based on the capital value, which is what the property is likely to have sold for if it were on the market at the date of the valuation, the land value, and the improvement value, which is the difference between the capital and land value.

They are calculated using a “mass appraisal” system that combines traditional valuation and statistical techniques. Recent sales in the area are considered, as are factors such as property type, location, land size, zoning, and floor area.

This is a “point in time” assessment. So in Auckland’s case, the new values reflect a property’s likely sale price on the valuation date of June 1, 2021.

But if my new CV is higher won’t I have to pay more rates?

Not necessarily. Auckland Council financial policy manager Andrew Duncan says an increase in a property’s value does not automatically mean an equivalent increase in rates.

What determines a rate rise is whether a property has increased more than the average for the same property type across the region, he says.

“If a property increases above the average it might see rates rise, but if the increase is below average it might see a reduction, or a smaller increase.”

For example, with Auckland’s new valuations, the average rate rise for residential properties has been calculated at 6.02 per cent. But council projections show that for 53 per cent of properties the increase will be below that, Duncan says.

Does the CV reflect the market value of my property?

There is a difference between a property’s council CV and its market value. CoreLogic chief property economist Kelvin Davidson says the primary reason for CVs is for the council to set rates.

While they might function as an indication of market value at a point in time, they are not intended to be taken as market value, he says.

“That is because they are only set every three years and can become outdated quickly, and they don’t reflect any subsequent changes to a property or factors such as school zones.”

In contrast, the market value is the probable price a property might sell for at any given time. The current economy, market supply and demand factors in the housing market, the existing and potential use of the property and the land, and interest rates all play a role in market value.

Davidson says some people still interpret CVs as the value of their property, and 30 years ago they were the only indicative figure homeowners had.

“But times have changed and there is so much sales, listings and price information available these days it is easy to build up a realistic understanding of the market value of a property.

“For a more professional assessment, real estate agents will do them for free, or you can hire a registered valuer to do one.”

Why is the CV on my neighbours house more than mine?

It is possible for properties in the same suburb, or even the same street, to have vastly different CVs.

Property type, location, size, zoning, and considerations such as flood overlays all come into the equation for individual valuations, as do the number of bedrooms and bathrooms.

Real estate business consultant Lauren Mirabito says all these factors lead to differing CVs on neighbouring properties.

A good example she has observed is two properties in Beach Haven in Auckland. Both are cliff front with sea views.

One property is a recently renovated, 120sqm, two-bedroom house on a 665 sqm section. Prior to the new valuations, it had a CV of $940,000.

Next door is a 350sqm, four-bedroom house on a 1400 sqm section. The house is dated and has some issues, and most of the section runs down the hill and can’t be developed. Until the latest valuation, it had a CV of $2.3 million.

“But it’s worth noting CVs don’t take into account emotional factors like sea views, waterfront access, and building appeal, and they can make a big difference to the market value of a property,” Mirabito adds.

Do banks and mortgage advisers take CVs into account?

Banks don’t pay much attention to CVs these days, Mortgage Supply Company director David Windler says.

“The CV is almost the last measure of a property’s value that a bank looks at these days. Instead, the premium measure of value is the price that is on the sale and purchase agreement, because that’s the price someone is prepared to pay.”

Like Davidson, he says there is so much high-quality data and so many accessible valuation systems around, that CVs have been superseded as a measure of establishing current value.

If I think my CV is too low, or too high, can I challenge it?

Yes, anyone can object to the valuation of their property if they think it is incorrect. But they have to do so before a certain date. For example, Auckland property owners have until April 22 to object to their new valuation if they don’t agree with it

Mirabito says people tend to object to their CV if they think it is not high enough, particularly if they are thinking of selling.

“In reality, if someone is staying put, it might be better for them to object on the grounds it is too high as it could mean lower rates for them.”

Reference:

https://www.stuff.co.nz/life-style/homed/real-estate/127964824/heres-what-cvs-mean-for-your-rates-and-your-property?cid=app-android

Date: Mar 09 2022