What's your house really worth?

What's your house really worth? We look at the various options

What’s your house worth? It depends on who’s asking: Is it the bank, a potential buyer, the local council or your insurance company?

Understanding what drives house prices in New Zealand is critical when trying to sell your house.

Every house in New Zealand has four distinctly different values:

1. A capital value (CV) – the value generated by your local council in order to set your rates. This free valuation is sometimes known as a government valuation (GV), or as a rateable valuation (RV).
2. Its market value – the price you’d get if you sold it today.
3. A registered value – provided by a registered valuer at a cost of around $500, and usually used by the bank to secure or refinance a loan on the property.
4. A rebuild value – the estimated cost of rebuilding your home if it is destroyed in a disaster. This is your ‘sum insured’. A professional estimate costs around $500; an online calculator is free.

These four values can vary widely. Right now, just before the new Auckland CVs are released, it’s quite possible to own a property in suburban Auckland with a market value of $998,500, a registered value of $925,000, a CV of $580,000 and a default insurance rebuild value of $315,000.

The four values - CV, market, registered and rebuild - can all vary wildly

November will see the release of new CVs for all of Auckland and Rotorua, and for many homeowners the number will be a huge increase on the previous figure. The average increase in Auckland is 33%, so half of all CVs will have leapt up by more than a third. But that doesn’t mean your CV will match what you think your house would sell for.

Why is my CV still too low?

Come November, many Aucklanders will be wondering why their CV is still much lower than the price they think their house is worth. This is caused by a number of factors, and a low CV is not necessarily a cause for concern.

The council generates your home’s CV using statistics, which it constantly updates using settled sales, consented building projects and other information.

The council does not visit every house, although it does visit some and assess others from the street (you can find current CVs here). It indexes the CV of your house against other houses of a similar size, type and location.

Your new CV, which you will receive in the mail, is set at 1 July 2014. If prices take their usual springtime leap, your CV will be out of date well before it even arrives in your letterbox.

In addition, the council only looks at settled sales, creating more of a time lag, and it doesn’t take into account any refurbishment that didn’t require consent. You could gut your kitchen and spend $90,000 replacing it, and if you didn’t need consent your CV wouldn’t budge a dollar, although the market value of your house may have increased considerably.

Should I challenge my CV?

If your CV seems too high, you may want to object because a reduction will result in very slightly lower rates. If your CV is too low, you may want to object if you are planning to sell your house over the next three years, because buyers do use them as a rough guide to pricing (against all advice). If you have no plans to sell, you probably don’t have a pressing need for your CV to be more accurate.

In 2011, about two-thirds of Aucklanders who objected to their valuation felt it was too low, says Peter McKay, Auckland Council’s valuation team leader. Across all the objections, around 80% were settled at 20% above or below the original figure.

From the date you receive your new CV, you will have 30 working days to object, and you should start by calling the council and talking to their valuation team.

So what’s my house really worth?

The best assessment of your house’s market value is a registered valuation by a registered valuer, like Trinette Giborees-Smith, a Property InDepth franchisee.

A valuer will visit your home, assess sales of similar properties and come up with a number. This isn't free, although sometimes your bank will cover the cost when you’re taking out a home loan.

“Our valuations are used mainly for bank lending,” says Giborees-Smith, “and also for vendors, especially on tricky properties where the agents are having trouble pricing it. We value within a range; two valuers won't put the exact same number on a property, but we’re all usually within 10% of the market value.”

The exceptions come in a rapidly-rising market, where sales from even three months earlier are now out of date, and a shortage of property can lead to desperation among buyers. What your house will sell for remains unknown – no valuer can take into account what industry experts call ‘the nutter in the room’ at the auction.

“The [Auckland] market’s curbed a bit now, but there has been a willingness for people to pay what they need to pay to secure the property, as opposed to paying what the property is actually worth,” explains REINZ CEO Helen O’Sullivan. “People who have been to 17 auctions and left with the deposit in their pocket each time – and I’ve seen buyers with two young children and a baby on the way, with some real urgency to settle within the month.”

Do I really need to pay for a sum insured valuation too?

Your sum insured valuation is probably the one you give the least amount of thought to, but it’s extremely unwise to ignore it. If you don’t nominate a sum insured, your insurer will use a default sum, which is “by definition going to be wrong,” says quantity surveyor Gary Caulfield, general manager of Construction Cost Consultants.

And while some people try to use their CV’s ‘value of improvements’ as a proxy for a rebuild value, McKay cautions that it “bears no relationship to rebuild costs.”

You can use an online calculator to work out your rebuild costs, but if you underinsure, you could be in trouble if your house burns down. Caulfield recently put a rebuild cost of $1.7 million on a top-end Auckland property; the default sum insured was $540,000. With mortgage payments to make and a million-dollar insurance shortfall, the owner would have been financially ruined if the house had been destroyed – and Caulfield says that 75% of New Zealand homes are underinsured.

“Homeowners need to understand they have a new value, as well as their CV and their market: the rebuild value, and it’s potentially the most important one to get right.”

So when your CV arrives in the mail in November, try to remember that it’s probably the least useful of your home’s four different values (and therefore the house price) – perhaps you should use it as a reminder to think twice about your home’s insurance.