One of the things we do is provide our sellers with a real estate appraisal - that is, our view of the selling range of a particular property. In the interests of transparency we think it useful to describe how we actually developed the appraisal - and yes there is a methodology, we don't think the good old fashioned 'guess' based on 'years of experience' is a valid approach.
We provide an appraisal as an input to a sellers decision making and to provide objective backing to any discussions we may have relating to price. At the end of the day our sellers make their own, hopefully informed decisions, our role is to back our advice with objective facts. We stress that it is important for anyone selling their home to take charge of the pricing and decision making process - seek different inputs from professional, qualified people.
The formal requirements for a real estate agency appraisal are outlined in the Real Estate Agents Act Professional Conduct and Client Care Rules, section 9.5 An appraisal of land or a business must be provided in writing to a client by a licensee; must realistically reflect current market conditions; and must be supported by comparable information on sales of similar land in similar locations or businesses. As you would expect our approach reflects those requirements.
We look to be very objective and data driven when constructing our appraisals and we gather data from various sources, including:
- Details from local council records - including information such as land area, Council Valuation (CV) and it's subcomponents, Land Value (LV) and Improvement Value (IV).
- Overall suburb sales trends, and expanded suburb trends from the Real Estate Institute of New Zealand (REINZ) statistics
- Specific sales information from properties in your suburb (REINZ statistics)
- What is currently for sale in your suburb (from www.realestate.co.nz and www.trademe.co.nz/property)
- General market information as broad as national economic factors
- What we don't do is add personal observation to the list - we do not physically visit the property to inspect it
We use CV's as an important benchmark to compare properties, CV's are a consistent valuation measure across your town and suburb. Quotable Value (QV) describe them as Formerly called Government valuations (GVs), council rating values (RVs) are compiled by statute, under the Rating Valuations Act 1998, mainly as a uniform basis for levying local and regional council rates. Rating values also serve as a useful guide for property owners and other interested parties, as they are impartial and independently assessed as at the same date for every property in a Local Council. While CV's are often only done every 3-4 years and can get out-of-date they remain a consistent benchmark for all properties in an area.
The sales of other similar properties are the most important source of information, and we use statistics gathered and reported by real estate agencies who are members of REINZ. We compare these actual sales against CV's to determine how the market has moved over time and therefore how the valuation of your property may have changed since the CV was completed. Of course, the REINZ statistics only include sales completed by members of that organisation and so private sales or those where the agent is not a member of the Institute are not included. The data is also input by those agencies, and so is only as accurate as that provided by them.
What does this mean for you? Our approach has a couple of important benefits:
- Data driven - it is based on published statistics and uses a standard methodology. It is not based on a subjective analysis by the real estate agent relying on his/her personal knowledge of similar properties.
- Objectivity - we are not going to tell you what you might want to hear. Sorry about that!
As you would expect with any process there are limitations and it is important you understand those when reviewing our appraisal and making your decisions:
- We are not valuers, we are real estate agents. We use a structured approach but we do not go into the depth and detail that a valuer does, and while we both rely on recent market sales as the most important factor the valuer adds their training, skills and experience to the mix. After all, that's what you pay them for!
- We have not visited your property and for the purposes of the appraisal assume that the current finished state of your property is in line with the average for the area.
- We rely on published data – so if for example you have installed a new kitchen and bathroom, or some other extensive remodel that has yet to be finally approved through you local council we will not know about it.
So there you have it, our methodology for developing your appraisal. It is but one input into your decision making while selling your house. When it comes to making final price/value decisions on your property remember, selling your house is a major financial decision and we always recommend that you obtain appropriate professional advice. With respect to the value of your property then the only truely objective approach is the one we always recommend to our clients - consult with a reputable registered valuer.