ValGroup Blog

For many of us, whose houses and buildings have been affected by the earthquake, it is time to dig out our insurance documents and double check the fine print.

Many of us have a reinstatement policy, under which both partial and total destruction will result in the reinstatement of the insured asset with a new structure that offers the same utility, adopts modern construction techniques, utilises modern equivalent materials and meets modern building code requirements. This means that, for example, where you previously had a single glazed house, the replacement may be double glazed, in order to meet present day building code requirements.

Some of us, particularly those of us with older buildings, might only have indemnity cover. The principle behind indemnity is that the insured must be compensated for their loss, but must be in no better or worse position that they were prior to the event. The assessment is typically a market related indemnity value, as opposed to a reinstatement value less physical depreciation.

The team at FordBaker Valuation a member of ValGroup provide both reinstatement assessments and pre-loss market indemnity valuations and are always ready to advise you on these matters.

When you purchase a new house, you would be well advised to obtain a registered market value valuation. In reality, your bank will often require you to do so.

Market Value is described in the Property Institute of New Zealand’s 2009 Practice Standard manual as:

“ …the estimated amount for which an asset should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.”

In essence, market value supposes a hypothetical sale and incorporates a number of assumptions:

1 The parties to the hypothetical sale are both willing;
2 The hypothetical transaction must not be between related parties (eg a trust transfer);
3 The hypothetical sale must take place after exposure to the open market;
4 The parties must be sensible: they must be informed of all property details and be aware of prevailing market factors.

When assessing market value, valuers must therefore also be aware of the circumstances behind each of the sales used as evidence to form the basis of the valuation. Without these four assumptions, a sale cannot be considered to genuinely provide evidence of true market value.

Many of our clients ask us if the rating valuations, used by councils to set rates, can be used as an indicator of their property’s value.

The answer is no, as rating valuations are completed on a three-yearly basis and undertaken via a mass-appraisal system, which means that the majority of properties are not individually inspected.

In particular, the Christchurch City Rating Valuation review, effective 1 August 2010, was to be released in November 2010.  Due to the earthquake, however, the Council have successfully applied for a Special Order in Council (approved by the Governor General) to defer this revaluation until 1 December 2011.  Consequently, rates will continue to be calculated using 2007 values.

It is anticipated that the rating valuations, when released on 1 December 2011, will reflect the impact of the earthquake on property values, especially the affected properties in the eastern suburbs and those satellite settlements to the north and south of the Waimakariri River, ie Brooklands, Stewarts Gully, Kairaki Beach, Pines Beach and Kaiapoi.

Given that the Christchurch rating valuations are now over three years old, FordBaker Valuation Ltd a member of ValGroup recommends that you obtain an up-to-date registered valuation if you are looking to buy, sell or refinance. 14 December 2010