What is the difference between the CV and the market value?

The Capital Value (CV) is the value used by a city council to allocate and assess the rates for a property.

In the Auckland region, the CV (Capital Value) is the same as the Rateable Value.

There is no fixed relationship between the CV and the market value of the property.

That is why some owners have found their property to sell only 50% above the 2014 CV while other owners have seen their property sell for nearly double the 2014 CV.

However some differences between the market value of a property and its CV could be:

  1. Because of a timing difference between the CV valuation date and the date the property is sold. CV usually updated once every 3 years. So in a rising market, the prices would have moved upwards since the 2014 CV valuation and so the market value at a later date (say 2017) will be higher than the 2014 CV.
  2. CV does not include chattels and other improvements done to a property. If you renovated the interior of the house, this is unlikely to be reflected in the CV.
  3. When setting a rating valuation, the valuers go through a process known as mass appraisal. So valuers don’t visit each home individually and value it. Instead valuers divide each region into areas and consider relevant property sales within each area to get an idea of the market and its trends. They may sample a few properties and visit them individually to gain an understanding of a typical home in a neighbourhood. Then based on the sales data, their field visits, and market analysis, they will update the valuation for each property. The entire process is audited by the office of the Valuer General. But it is important to note that valuations are subjective and significant judgment is involved. It is indeed possible for 2 valuers to come up with different values using the same set of facts.
  4. Market value is based on the most probable transaction price at the present time. CV is based on historical/recent sales so is backward looking. Market value takes into account the current trends and most importantly it recognizes that certain lands have development potential and can take this into account.
  5. For commercial  properties, an additional difference is the building is assessed as if it were fully occupied and the rent was at market rates. So that is why some commercial buildings have been sold for less than CV because it was partially vacant and the existing tenants were on leases that were at below market rates.

The key thing to remember is that CV is just used for rating purposes. Your property may sell at a different price because a buyer takes into account a property’s individual circumstances in coming up with a purchase price. A buyer can make detailed inspections and explicit assumptions while a CV is a valuation based on a typical home in your area and not reflect your property’s specific features. Lastly, CV is only updated once every 3 years so the property market may changed since then (upwards or downwards), so may not be indicative of the current value.

 

 

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