By STEPHEN HART

How much should buyers offer when negotiating to buy a home? How do you know if the listing price is fair or vastly inflated? Do you risk offending the seller with a low offer that jeopardises the whole deal? What’s a reasonable price?

Making offers scares a lot of residential buyers. Unlike hardnosed investors, who buy and sell without emotional considerations, most buyers have at least partially fallen for a home in order to even get to the offer stage. The majority of buyers want to make a fair offer but are often paranoid that they may be about to be ripped off by paying an opportunistic asking price.

Arming yourself with some relevant facts and figures about the current market can bring you some basic rules, peace of mind and often result in a very smart buy.

When it comes to house prices there are three key value items that commonly confront buyers of any home;

• The listing or asking price
• The capital value or rateable value
• The sales price

Analysing how these values currently relate to one another in the marketplace can enable buyers to put forward offers based upon facts and negotiate in a reasoned and objective manner.

First, let’s consider the listing price; as the name suggests, this is the price that the house is originally offered for sale at. It has been agreed by the vendor and agent. If you make an unconditional offer at the listing price you should expect your offer to be accepted and for the house to become yours.

The problem is that some sellers have unreasonably high expectations about what their house is worth, while others might even undervalue their home. How do you know which is which?

Secondly, let’s look at the capital value. The CV is an estimate of a home’s value calculated every three of years on behalf of the government for rating purposes; the higher the valuation, the higher the rates payable. You can find a home’s CV easily by going to your city council’s website and looking up the rating information for any address in its catchment area.


Finally there is the sales price. This is the final negotiated and accepted price by both buyer and seller and is the most telling statistic of true market value.
So, are these statistics all separate and unconnected? Is the sales price the only one worth taking into account? If so, that’s a shame because, unlike the CV, it’s the hardest one for the general public to gain access to, although it is readily available to agents.

Many real estate agents will tell you that the CV isn’t worth the paper it’s written on. It is not a result of a proper inspection, it lumps good homes with poor homes and it’s almost out of date by the time it is published.

Undoubtedly, a $600+ inspection and assessment by a registered valuer, or even a $27 e-valuer report from qv.co.nz will give you a more accurate value estimate, but the CV can be used as an initial rule of thumb, especially for considering multiple properties economically.

In fact in recent times it has become the norm to list (and sell) at prices 30% or 40% above the CV. However, even if homes are selling at a given premium to their CVs there is usually still a noticeable correlation; the problem is that it is difficult for the public to know what that premium is without industry data.

The good news for the public is that for the first time in seven or eight years we are seeing listing and sales prices dropping to more closely mirror CVs (see graph 2005 - 09). In fact in the last three months the average sales price for homes sold in New Zealand has been 2% below the average CV price.

Homes still need to be considered individually and judged on their own merits. Buyers need to recognise that although CVs and sales prices are very closely tied in New Zealand as a whole, there can be significant differences in regions and neighbourhoods. However, I think that is up to the selling agent (who has ready access to these figures) to demonstrate that fact to the buyer, until that happens buyers have a window of opportunity to access homes’ CVs at no charge via their city councils’ websites and use them as a basis for their offers - and to expect those offers to be taken very seriously by sellers.

Stephen Hart is a director of Auckland HomeFinders and author of Where to Live in Auckland 2009 and The Streetwise Homebuyer.

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