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Clarifying Capital Valuations – Part 1

Buyers and vendors often have a confused understanding of capital valuations, sometimes abbreviated to CV. The confusion surrounds not only what a CV is but what it means.

A capital valuation is carried out by a largely independent organization to provide property values for rating purposes for a local authority.  For some time in Dunedin, these valuations have been done every three years by Quotable Value (QV) for the Dunedin City Council. The last was in July 2013. Every property owner receives notification of their CV later in the year, usually in October or November.

For background, QV was originally formed as a Crown-owned company in 1998 out of the former government department, Valuation New Zealand, whose main role was establishing rating values for local authorities. Through a law change, local authorities were able to contract out valuation services, so QV, which became a State-owned enterprise in 2005, now competes to provide this service. This helps explain why some people still refer to CVs as “GVs” (an abbreviation used for Government Value).

Capital Values BlogHow does QV determine a property’s CV? Quotable Value does not physically visit all city properties. It arrives at a CV using historical data, any updated information on the property held by the local authority or itself and by using a computer model to adjust values up or down for each value period according to recent relevant real estate sales statistics. The CV is the value assessed at a specific time. In Dunedin, this has been July every three years.

The main point to be made here is that a CV is not a market value. The two are quite separate though often confused. A market value is often defined as “the price paid by a well-informed buyer to a willing seller”.  CVs and market values can vary widely. (More on this in part 2 of this article).

Another related fact to bear in mind here is that CVs do not include a property’s chattels, that is, items that are usually included with a property sale, such as oven, floor coverings, light fittings, drapes and appliances. The value of these can often add up to many thousands of dollars.

As well as being clear about what a CV means, it is worth being careful when using abbreviations. I often hear buyers referring to a property’s “RV”.  Sometimes this abbreviation is used to refer to “ratable value”, which is more properly called the capital valuation or CV. But others use “RV” to mean “registered valuation”, which again is quite a different thing.

A registered valuation is a value determined by a professional valuer assessing a property’s fair market value, that is what the property is likely to sell for on the current market. It is not unknown for valuers’ opinions to vary, but usually by not more than 10%. Incidentally, QV carries out registered valuations as well.  See its web site http://www.qv.co.nz/

And just like CVs, registered valuations can become dated, depending on property markets. Generally, real estate professionals would advise that a registered valuation more than six months old should not be relied on. Banks also insist on recent registered valuations.  (Part 2 to follow).