When your property valuation doesn’t rate
Worried about higher rates, or what a lender might think? Rob Stock sets out the valuation challenge process.
Auckland homeowner and landlord Gary Osborne is challenging the $895,000 rating valuation on one of his properties.
He’s not planning on selling them any time soon, so he doesn’t feel he’s shooting himself in the foot by seeking a lower valuation.
He just wants to make sure he’s only charged his fair share of rates.
His property in the West Auckland suburb of Henderson went up from $490,000 in 2014 to
$895,000 in Auckland Council’s latest round of rating valuations.
The rise of 83 per cent clearly shows the hyper-inflation Auckland houses have been subject to since 2014.
Scratching his head at the
$895,000 valuation, Osborne went on to the council’s website, and checked neighbouring properties’ rating valuations.
‘‘I couldn’t find any consistency,’’ he says.
The average rating valuation across all of Auckland was up 45 per cent, with some of the biggest rises in further-flung suburbs such as Te Atatu and Henderson.
As rating valuations are used to help determine individual property owners’ share of council rates, those with larger valuation rises will get proportionally larger rate rises than owners who experienced smaller valuation increases.
‘‘When the rates come out, lower-income people are going to get screwed,’’ Osborne says.
He expects the rates rise on his $895,000 property to be double the average increase across the city, unless his challenge to the valuation is successful.
Thousands will lodge similar challenges in Auckland, and property owners have until 5pm on January 16 to get their objections lodged.
In 2014, when mayor Len Brown’s massive rates hikes were pending, about 7000 Auckland residents challenged the valuations of their homes.
Around the country, all councils carry out the three-yearly valuations required under the Ratings Valuations Act.
Some homeowners lodge challenges in the hope of getting a higher valuation, which might influence potential buyers, or lenders.
Others hope for quite the opposite, and just want to keep their rates rises down.
Back in 2014, four in 10 Aucklanders who objected got lower valuations, while three in 10 had their valuation lifted.
A rating valuation consists of three elements.
A property is assigned a ‘‘capital value’’, which is the amount the place would have sold for at the date of the valuation.
The council’s valuer also calculates a ‘‘land value’’, which is an estimate of the price the land would have fetched at that date.
From this an ‘‘improvement value’’ is calculated – capital value minus land value.
In Auckland, the tiny improvement values have left homeowners scratching their heads because they are so much lower than the rebuild cost, after a fire, for example.
‘‘That’s only because of a seriously distorted market,’’ says affordable-housing campaigner Hugh Pavletich.
‘‘The dopey land valuations have distorted the ratios (between the LV and the IV).’’
Until the early 2000s, the improvement value of Auckland homes might be roughly half the land value. Now, it might be as little as a quarter to a fifth, sometimes even less.
That reflects the value that developers can now get from more intensive development of land in an increasingly crowded city.
A plot of land currently holding a one-storey, three-bedroom bungalow might now be used as the site for a five-bedroom, twostorey home, or two or more dwellings.
Osborne, a former real estate agent, challenged the council’s
2014 rating valuation of a different property he owns.
Auckland Council had bought a chunk of his land in front of the Te Atatu Rd house for $47,000 for road-widening, but the ratings valuation was done as though the land were still his.
Osborne argued that if the council paid $47,000 for the land, then his valuation should be
$47,000 less than the $690,000 ratings valuation QV had decided on.
The council eventually agreed, almost, and dropped his valuation by $45,000.
Many homeowners challenge rating valuations without such strong evidence.
Individuals seeking to lodge such a challenge must apply to their council.
They’re encouraged to provide as much supporting evidence as they can, including any recent valuations, or sales data.
Once a challenge is made, the council gets its valuers to review the valuation and make a change, or leave the valuation as is.
Sometimes councils will agree to ‘‘settle’’ an objection.
That happened, for example, in the case of Northlander John Skeates, who earlier this year objected to a valuation of $620,000 on his property, of which $450,000 was land value.
Skeates felt the valuation should be $458,000, including land value of $338,000.
The council is presumed to be correct in its valuations, unless proved wrong. So when the Far North District Council agreed to drop its valuation by $30,000, that new value became correct.
Homeowners who remain unhappy after a valuation review can take their fight to the Land Valuation Tribunal, which exists to ensure property owners get valuations justice.
The tribunal publishes all its many decisions online, and they show that evidence is required before it will change a council valuation.
At this point, the ‘‘onus of proof’’ is on the property owner, so paying for formal valuations becomes a must.
Although there’s no cost to lodging an objection to your local council, taking a case to the tribunal brings a $50 application fee. Should there be a hearing, the applicant must pay $900.
"When the rates come out, lowerincome people are going to get screwed."
Gary Osborne