Appraisal or definitive value… which do you really need?

Price, value… and anything involving a dollar sign is the most talk-about component of property negotiations.

It is a critical element for buyers and sellers as well as agents, but it involves more than one party’s perspective. Are we talking about the rateable value, the market value or the appraisal?

In trying to unpack the implications of these, let’s begin with the rateable value, or RV.

In Australia and New Zealand, this is the value set by the local authority or council in order to determine rates for a property, and may also be known as the capital value (CV) or government valuation (GV) in New Zealand.

Generally speaking, a Council undertakes a massive comparison of recent sales in an area in order to calculate rateable value, and holds information for each individual property such as property type, location and land size, zoning, floor area, views, consented work (such as renovations), and many other factors. This is required by law on a regular basis, but it is not done for the purpose of guiding real estate activity.

There is quite a bit the RV doesn’t take into account, including interior design, fixtures and fittings, and refurbishments that haven’t required council approvals, for example.

So now we move to the market value. This is a possible price you might expect buyers to pay at a given point in time based on many market factors including supply and demand, existing and potential use of the land, visual appeal, the neighbourhood, access to schools, interest rates and the economy. While sometimes the RV may give a rough guide to the market value, both practical features and emotional factors can have great impact on buyers.

An individual property can be viewed from different perspectives – for example, that of the home owner, the potential new owner-occupier, an investor or a developer – so it may help to think of three main types of valuations: the council valuation, a bank valuation or valuation carried out by a certified valuer, and a market value.

The latter is akin to the real estate agent’s appraisal.

The formal valuation and the appraisal are two different things. Reasons for requiring a valuation, which you pay for, might be for borrowing money, establishing value of a deceased estate, or for some sort of legal dispute resolution.

The appraisal is a guide to pricing and estimated through the knowledge and expertise of the real estate professional who knows how much homes are selling for in the market at any given time. They know what your competition looks like, and they have access to market data, including comparable sales. They can also provide you with information on the buying process.

The agent is your key to understanding market value.