Have you paid too much?
You just got the phone call from the real estate agent letting you know that your offer on the house you have your heart set on has been accepted. You paid the GV (Government Valuation, or RV – Rating Valuation). Did you:
A Pay too much?
B Pay a fair price?
C Got it for a steal?
So, what is the correct answer?
Actually, it could be any of the above, depending on many factors. Firstly, how recent was the RV? If it was older than 12 months, the likelihood of it being relevant slips away quickly. Markets change. Banks recognise this and when they require a Registered Valuation for security purposes they usually want it be not more than 3 months old.
The condition of the property has a huge impact on its market value. Improvements to property are only captured in the Rating Valuations if they require resource consents or building consents. Rating Valuations don’t necessarily capture landscape gardening (you could easily spend $60,000 plus here). Nor do they take into account new kitchens, bathrooms, interior and exterior painting, or new carpets.You could easily improve a property by spending over $100,000 and it still wouldn’t be reflected in the Rating Valuation.
Then there is the motivation of the seller. If they needed a sale and were keen to take the money, then maybe they settled for a lower end of the fair market range. Or maybe they weren’t in a hurry to sell and you had to pay what they wanted in order to get it (usually a dream price).
Really, it’s hard to say if the GV was an accurate market value or not. But most buyers know this. They know what is fair market value. They know what is over priced and they know what’s a steal. And they know (deep down) that GV doesn’t usually have a lot to do with market value.
It’s not about GV. It’s all about the competition. Sellers have competition and so do buyers. When a house is for sale, it is never sold in isolation. It is in competition with other houses for sale. And buyers only pay what they have to pay in order to get the property and no more (usually more than the other buyer) .
That’s how the market works.
Mmmmmmm. now that’s food for thought …