Frequently Asked Questions

Most financial institutions will only accept valuations that have been completed by an independent and professional Registered Valuer.

In addition, when you chose a registered valuer you can be sure not only do they have a formal property valuation qualification and a number of years work experience, they have also been through the rigorous registration process with the Valuers Registration Board and they continue to comply with the continuing educational requirements of the NZ Property Institute and NZ Institute of Valuers.

While a Registered Valuer may not be an expert in the field of building and engineering, they are adept in identifying issues and possible problems (such problems should of course be passed on to another professional for investigation) and the public can be sure that Registered Valuers are aware of and up to date with all current practices, standards and codes of procedure.

Registered Valuers’ reports are provided for a broad range of purposes. Registered Valuers are often asked to assess the market value of a property but can also provide other value reports, including reinstatement and replacement values for insurance purposes, initial rental assessments and rent reviews (mostly on commercial, industrial, retail and farm properties).

Also a board range of other purposes including feasibility studies, compensation and valuations of proposed subdivisions and developments. Registered Valuers can provide values from plans of proposed buildings and progress assessment, which form the basis for progress payments which fund ongoing development projects. Expert Valuers undertake a wide range of other specialised assessments. Speak to a Registered Valuer to see how they can help you.

It is important to note that we are not Financial Consultants as defined by the new legislation, and our advice is confined to the appraisal of real property, land, buildings and other structural improvements.

There are several instances where you should request a valuation; if you are buying, selling or building a property; if you are looking to transfer a property to a trust; if you need to insure your property (request an insurance certificate); if you are considering buying an investment property, if you need to negotiate a lease; or if your organisation needs to report asset values.

Financial institutions look for independent opinions on the value of a house as this is one of the ways they calculate how much they can lend for a mortgage request.

Property Valuers are qualified property professionals who value land and buildings. A property valuer will have completed a University diploma or a degree.

Valuers then need to complete three years of professional experience and pass rigorous oral examination to become a become a Registered Valuer. The registration process is overseen by the Valuers Registration Board which is an independent government body. All Registered Valuers are required to be members of the New Zealand Institute of Valuers.

Physical inspection of property, inside and out, including measuring up buildings, photographs, inspection of applicable sales evidence in locality, and drafting report to comply with NZIV/PINZ standards plus Compliance Statement IVS3.
The Content of a Report Includes
Legal Description, including copy of Computer Freehold Register Identifier (or Certificate of Title); Rating Valuation; Valuation calculation and methods adopted; supporting sales and rental evidence (if applicable); description of property, zoning, building age, construction and condition, any other buildings and site development; comment on any areas of concern, such as zoning, title encumbrances and building construction, plus whether any further investigation of these is warranted; compliance statement; and International Valuation Standards and valuation policies adopted in preparing the report.

In order to get to the market value of a property, a Registered Valuer will fully and professionally analyse every possible aspect .

Below is a list of requirements for a valuer in order to be able to prepare a written report upon completion of a valuation:

• Inspection of inside (walls, floors, ceilings, doors, design features) and outside (exterior cladding, roof, guttering, joinery), rating of the overall condition.
• Measurement of dimensions of buildings, garage(s), car parking.
• Estimation of age of the building.
• Note material and construction type, and any maintenance requirements.
• Note any issues relating to flooding, drainage, subsidence.
• Make reference to the District Plan, noting current use of the property and zoning.
• Refer to any positive/negatives relating to neighbours, location, distance to town centre, recent sales activities and make assessment of marketability based on the observations.
• Take into account the current state of the local property market.
• Take into account the details of the Title.

Market Value is defined as;
“The estimated amount for which a property 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.”

Rateable Valuations or Rating Valuations provide the basis for the levying of rates by local authorities and regional councils in NZ. All RVs are independently assessed and are compiled under the Rating Valuations Act 1998. It is important to notes these are not current market values they are mass appraisals, computer generated, and indexed assessments for rating purposes only.

A publication from Auckland Council states “they won’t need to enter your home, as they will assess it from the street (or driveway, if necessary)”. This says a lot about the process – homes could have been redecorated with major internal upgrades, that do not necessarily require consents. These RV assessments may not make any allowances for these facts and may understate these improvements, conversely the home could have been neglected badly inside and receive a relatively high valuation as a consequence.

RV’s are not a good guide to actual ‘Value’. We often see RV’s that are widely different from actual sales in any given area.

Our advice: If you rely on a Rating Valuation to determine what you perceive the property is worth “DO SO AT YOUR OWN RISK…”  It is important to have a detailed look both inside and outside to make an accurate assessment.

The Title is important. A search obtained on a title by your legal advisor will show you the (leasehold or freehold) of the property, and it will also show any registrations which may affect the value of your property, such as building restrictions. Does the outline of the dwelling match that on the Flats Plan? If not it could be a defective title.

The NZ Valuers Institute requires that valuations for mortgage purposes include a mortgage recommendation and this recommendation must not exceed 66% of the market value. A small number of financial institutions ask the valuation not to provide a recommendation at all which is a departure from the provisions of the International Valuation Standards 3 (NZPI Professional Practice Standards).

Any recommendation provided does not affect the level of borrowing, that is negotiable between you and your mortgage provider, who will have their own loan/value ratio (LVR) requirements.

Land Information Memorandum Report – provided (for a fee) by the local authority or at times by the seller of the property. In accordance with the Local Government Act, a LIM must be issued within 10 working days. It shows details on a property such as plumbing, drainage, water reticulation plans, consents, licences and permits, etc where known by Council.

It is important to check with the seller of the property for details of other work that may have been carried out without notification to the local authority as this may not be included in the LIM report.

Land Information Memorandum Report – provided (for a fee) by the local authority or at times by the seller of the property. In accordance with the Local Government Act, a LIM must be issued within 10 working days. It shows details on a property such as plumbing, drainage, water reticulation plans, consents, licences and permits, etc where known by Council.

It is important to check with the seller of the property for details of other work that may have been carried out without notification to the local authority as this may not be included in the LIM report.

There may be elements that are excluded from a LIM report – for some older properties, council records may not be complete prior to 1991 when the Building Act was brought in. A visual inspection is not carried out so information provided is dependent on the information held in the council offices.

Note also that the following information is not contained in a LIM report; building plans, accurate boundaries, easements, sacred sites, proposed developments in the neighbourhood, and any development restrictions etc.

A building inspection is a report that lists the condition of any potential problem areas of a property, including some common areas such as the structure, foundations/under the building, in the ceiling/roof and wall cavities, insulation, plumbing, electrics, pests and security. Most properties need only standard pre-purchase reports to be carried out in order to identify any deficiencies.

You should ask your inspector what building inspection qualifications he possesses, if he follows current standards for building inspections and if he is a member of any professional associations such as NZIBS (New Zealand Institute of Building Surveyors, Registered Master Builders, or if he is an architect or engineer).

It would be a good idea to ask if they have current professional indemnity insurance and if there are any exclusions to it.

Valuers do not certify on Building Inspection reports. Valuations assume unless stated otherwise that the building has been competently designed and built, is structurally sound and watertight. The building does not contain any latent or patent defects which could result in;

The building ceasing to be watertight.
Gradual decay of the building including its structure.

 

The main difference is that a building inspection informs you whether the building requires repairs, and an experienced inspector who is knowledgeable of the Building Act can provide you with solutions for any problems encountered.

Financial institutions are becoming increasingly aware of the need and value of a building inspection report.

If the Valuer is provided with a Building Inspection report he will take it into account if there are matters the valuer considers relevant to the property’s value.

It is very important to get a Valuer engaged quite early in the process even before you sign any contracts with a builder or submit plans to council for approval. Valuers can provide you with advice in terms of your design and layout to enhance saleability and value.

They can provide advice on whether or not you are over-capitalising in a location before you get started and offer suggestions to help you enhance value and saleability. Refer to the progress payment information sheet below which shows a guide of where the build will be at, at various stages during a typical construction cycle.

We need a copy of your plans and specifications. The plans would ideally have dimensions of the building and include an internal layout plan. A cross section and an elevation of the proposed structure would also assist.

We need to know the construction details and internal fittings, particularly the kitchen and bathrooms. Also any specialist fit-out like an alarm system, heat pumps, underfloor heating, sound systems etc. Also what the overall quality of specifications the home will be on completion e.g. average, above average or superior. What your intentions are in relation to driveways, paving, water tanks, waste disposal, fencing, site landscaping & development.

Once we have all the above detail we can provide a value “as if complete”. During the construction process your bank is likely to ask for progress payment certificates and/or a completion certificate.  This will usually be dictated by your loan agreement and contract with the builder.

Information Sheet for Progress Payment Valuations
Where a loan for a new house, or alterations is approved under traditional Bank lending practice, the loan offer will often be made subject to payments on progress.

This involves a valuation inspection of the property at the times stipulated in the construction contract, and the Valuer advises the Bank on progress in the construction.

There are several important rules which need to be understood and complied with;

• The progress payments are made on work which has been completed and installed.  It is primarily a payment in arrears on work which has been completed.
• No work or materials are included in the progress payment certificate unless installed in the property, even if you have already prepaid for them.
• The amount recommended to be withheld, is the Valuers assessment of the cost to complete the project.  In most cases, the Bank will withhold sufficient money to complete the project, but that can be subject to some variations.
• Some banks will pay on a percentage of the present day value of the total property, but whatever the methodology it will always be spelt out in the Bank’s loan offer.

The following is given as a guide only, and can be subject to variation, depending on the style of house and method of construction.

12 – 15% Project Cost – Floor Level (either concrete or chipboard) No framing. Fully enclosed shell only.

55 – 65% Project Cost – This is defined as being inclusive of all external walls, windows and doors, roof and floor. No interior fit out or services incorporated.

70 – 80% Project Cost – Lined, stopped to pre-decoration stage, all internal wiring and plumbing.

NB: The above is based on the contract price for the structure only, and does not include any allowance for external services including power, water supply, waste disposal systems.  These are often included as a separate contract, and will be included in the progress payment certificate as installed.

Some Other Important Points to Note

Banks very rarely advance funds for pre-payment of materials or services.  This can vary on a case by case basis however.
We note that a number of builders are incorporating payment schedules which are way in advance of the above.  This often leaves the owner with considerable cash flow difficulty in the early – mid stages of the construction.There is also the risk of advancing more funds to the builder than work completed to date – something to think about if the builder goes broke.

Please check your Bank loan offer very carefully, and if you are in any doubt about the progress payment schedule, feel free to contact Hollis & Scholefield Ltd.