Property Valuation Report - 18 Freestone Place (Official Document) PDF

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Download Property Valuation Report - 18 Freestone Place (Official Document) PDF

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Determining Market Value: The Curious Valuation of 18 Freestone Place, Henderson

PROPERTY VALUATION REPORT Essential Property Information: Property Address: 18 Freestone Place Legal Description: LOT 119 DP 189203 Statistical Area Unit 2001 (SAU): 513220 (Sturges North)

Origin of Image: Google Street View1

Brief Discussion of Property: The 18 Freestone Place consists of a standard, yet effective single storey, three-bedroom house – a recent dwelling originally built during the 2000s’2. Using the image provided, majority of the exterior wall appears to utilize traditional, yet textured stucco cladding alongside additional textured, reinforced coatings of fibrecement finishing. Condition-wise, council inspection data have recognized both the exterior/interior walls and roof to be in ‘good’ condition. The house is also constructed under a levelled plain of land, which not only allowing for more robust floor plan orientations, but also greater market value potential. Other commodities include an indoor garage (2-car) and a convenient freestanding work/storage -shed located in the backyard. Main Purpose/Objectives to Valuation To determine a reconciled market valuation using three common, yet different valuation approaches: 1) Cost Approach 2) Sales Comparison 3) and the Direct Capitalisation Method.

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https://goo.gl/maps/HpvR4m9DvvtnJ9r19 https://homes.co.nz/address/auckland/henderson/18-freestone-place/JMZQ2

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Figure 1 – Footpath, Fence, Shed, and Total Home Perimeter/Area

Figure 2 – Grass (includes back of Shed and the Main Driveway Area

Total Footpath/Walkway (red): 19m

Total Grass(light green; green): 332sqm

Total Storage Shed (crimson): 9sqm

Total Driveway Area: 69sqm

Total Home Perimeter/Area (sky blue): 112m/760Sqm COST APPROACH

IMPORTANT NOTES: My selection of the Base Building Cost (BBC) components and prices were primarily influenced from the subject property’s (SP) application of traditional stucco, and textured, reinforced fibre-cement coated cladding – a mix of materials that alluded high probability for a monolithic exterior plan3. Likewise, the property’s total internal floor area (160 sqm) fit within the QV Cost Builders parameters of said category, hence provided greater assurance to my final decision. Pricing-wise, I chose the median (average) of BBC within the Auckland BBC price range as the property’s surrounding community resembled similar comparable features and aesthetic. The first item of the chattel segment excluded the presence of carpeting from the kitchen and bathrooms as it would be impractical to do so. Secondly, the generated figures for the second chattel item were based on my best judgement to the most prominent items that families would own, which made a lump-sum amount more practical. 3

https://www.qvcostbuilder.co.nz/

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The only first significant adjustment in the external (sitework) segment came from the final item where I utilized independent figure cost estimates from Gubba Garden Sheds. This led me to calculate the mean (average) cost from the total aggregate cost of Gubba’s “10m2” shed catalogue4 - as 8.8sqm rounded to the nearest tenth. Indeed, all measurements provided by the images above were generated from Auckland

Council’s (AC) Geomaps and rounded to the nearest decimal place, while all final costs were rounded to the nearest decimal place. Within soft costs, the average pricing for professional fees was 7%. Contract Works Insurance fell at 1.4%, the Building Levy to 0.2%, and the Building Research Levy to 0.1%. These insurance fees arrived at 1.7% altogether of the total estimated hard costs ($6,540). In reconciling the market value with depreciation because the property was built during the early 2000s’ (assumption), 20% depreciation (1% per annum) was accounted for a 20yr lifespan. Thus, doing so adjusted the total construction cost down to the depreciation-adjusted estimate of $388,536. Land Cost - TradeMe Method (ALT) (Figure 3-4; left to right) Figure 1 –63b Harrington Road, Henderson, Waitakere City, Auckland Sales Price - $523,000/617m2 Figure 2 – 54a Awaroa Road, Sunnyvale, Waitakere City, Auckland Sales Price - $455,000/482m2 Land Cost – RBNZ/REINZ House Price Index (ALT)

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https://www.gubbagardensheds.co.nz/product-category/10m2-sheds/

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The subject property’s rateable value was sourced from Homes.co.nz which displayed the capital valuation (CV) at $820,000 of as 20175. This figure accounts for both land value ($665,000) and improvement value($155,000). Conversely, the TradeMe listings highlight the suggested asking prices for exclusive land sections on sale within today’s current economy. RBNZ/REINZ – Inflated Land Cost Estimate Calculation (May 2020 HPI - June 2017 HPI) / June 2017 + 1 = 1.1293 (House Inflation Factor) 1.1293 x (Land Value of SP’s CV) $665,000 = $750,984.50 Based on the latest housing statistics from the RBNZ/REINZ website, the difference between the (May 2020 HPI and June 2017 HPI) divided by June provided a factor of 1.1293, representative of the closest temporal relationship from the previous and most recent CV revaluations of the Auckland Council. Thus, this supplements us with one mentionable point estimate. Lastly, this needs to be reconciled in conjunction with 2 reported comp estimates (asking prices; TradeMe method). Reconciliation Assumptions/Insights: The inflation method proved to excessively overinflate the generated land cost. Such outcomes were mainly influenced by the RBNZ Price Index’s inaccurate dataset which accounted solely for NZ’s nationwide housing market price index, rather than exclusively for the Auckland region’s reported “land section prices” HPI6. Statistically, this places the inflated land estimate under detriment of being an upper outlier in comparison to using asking prices found in specific forums listings (TradeMe Property) that consisted of narrow, yet refined information7. In conjunction to the temporal difference from May 31st (latest HPI), the weighting for the inflation land cost estimate might only be 8% today. Similarly, Figure 4’s weightings of the TradeMe Method was adjusted to 30% for marginal utility purposes as less excess space was involved in relation to the sales price, hence efficiency had to be considered. Finally, Figure 3’s value adjustments were relatively less as it embodied the closest land area (2m2 away from the SP land cost). However, because of its $82,000 discrepancy to the average (mean) land cost of my five comparables standing at $605,000, the remaining 62% justifies these slight inaccuracies attributed to Figure 3. While the data collected remains imperfect nonetheless, the assessed weightings allude the most suitable land cost for Freestone Place to be $635,000. Note: No adjustment for negotiation was made under for the Trade Me method as my expectations assumed a growing, and more financially lenient market. SALES COMPARISON APPROACH Sales comparison approach involves analysing recent nearby transactions and properties with similar attributes to the subject property. This enables us to reconcile a judgement-based value rate from ascertained weightings based upon the similarities of the comparable properties to the subject property to estimated market value.

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https://homes.co.nz/address/auckland/henderson/18-freestone-place/JMZQ2#councilDataSection https://www.rbnz.govt.nz/statistics/key-graphs/key-graph-house-price-values 7 https://www.trademe.co.nz/a/property/residential/sale 6

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Majority of the table’s recent property transactions featured similar aspects as that of 18 Freestone Place with regards to certain utilities (e.g. – bed/bathroom count, lack of deck, access to Fibre, etc). Land area displayed the most variation of inferior figures spanning from 468m2 to 600m2, emphasizing Comp 4 as the closest comparable to Freestone – vice versa for Comp 3. In terms of decade of build, only Comp 2 and Comp 4 had inferior values, having been built during the 1990’s. The most drastic line item adjustment came with adjusting for the monolithic-cladding item as such material were fundamental determinants to the ‘leaky building crisis’ in NZ during 1984 to 2004 – Freestone Place is no exception. To account for the potential stigma, all my five comparable properties’ value rates were reduced by 10% as all utilized masonry veneer (brick), a more robust and structural reliable cladding material. In terms of marginal utility, Comp 3 had the furthest deviation from Freestone Place at 140m2 in floor area (20m2 lower than Freestone). Unlike the other comparables’ floor area, ranging between 5 and 10 m2, it was my best judgment to adjust Comp 3’s value by a mere 2%. Once again, because the reported information is imperfect, this adjustment was driven by my assumption that smaller properties are more efficient from the narrow square meter relationship to sales price relationship, hence the slight deduction to an expectedly higher value rate. As for weightings, these were the following: Comp 5 (55%), Comp 1&3 (both 15%), Comp 4 (10%), and Comp 3 (5%). These figures were founded under the assumption that transacted distant selling times are less appropriate since such may experience potentially fluctuating market conditions/factors (e.g. – supply and demand, inflation, market sentiment, etc). In conjunction to the explicit adjustments, my reconciled value rate reached $5,436/m2, estimating approximately $869,760 say $870,000 (rounded to 4 decimal places). Income Approach: DIRECT CAPITALISATION The image (below) features information sourced from MBIE’s Tenancy Service Website, which displays the geometric mean rents based on 18 Freestone Place’s statistical unit area (SAU) within the Henderson submarket8.

The information (right) was extracted from Interest.co.nz’s mean rental yield indicator, which compiles New Zealand’s mean rent yield within their corresponding submarkets9 Calculations: OER Approach (Market Value) - NOI = PGI x (1-OER) - NOI = (578 x 52 weeks) x (1 – 26%) - NOI = $22,240.40 (rounded to nearest decimal place) - Cap Rate = 4.0 (Henderson) – 1 (nominal amount) = 3.0 Based on Interest.co.nz’s rental yield indicator, whilst Henderson generated an approximate 4% return per annum, a nominal 1% deduction was made, bringing down the mean yield to 3.2% per annum as the representative capitalization rate. Through this derived capitalisation rate,18 Freestone Place’s estimated NOI ($22,240.40; OER method) is divided by 3.2%, thus highlighting a market value estimate of 695,012, about $695,000.

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https://www.mbie.govt.nz/building-and-energy/tenancy-and-housing/rental-bond-data/ https://www.interest.co.nz/saving/rental-yield-indicator

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Calculations: (Investment Value) - Cap Rat = 3.7 (RBNZ’s latest 2-year fixed mortgage plan) - NOI = $22,240.40/3.7 = 601,091, or $601,090 (rounded to nearest hundredths, 2 decimals) The image (right) was extracted from RBNZ’s index for housing mortgages for both floating and 2-year fixed rate residential home loans10. For this report, the 3.7 derived cap rate with similar fundamental OER calculations, $601,090 was my estimate. Discussion in Generated Value Estimates It is critical to acknowledge that the primary reason for the $93,910 sales price difference between the market and investment value estimates is due to peoples’ differing criteria and perceptions of value. Unlike experienced investors, avid, yet unaware individuals regarding the implication of cap may have stronger willingness to place financing for an investment property or primary residence at higher prices – conforming to capital gain speculations. Contextually, because Sam (partner) preferred a higher investment cap rate using RBNZ’s 2-year fixed mortgage index, His/her contrasting views connotates that he/she is less speculative of the market capital gains and more focused towards income growth through consistent market rents. Therefore, greater awareness propels her to transact more affordable properties as cash flow becomes her primary, yet realistic objective. Nonetheless, Sam must still acknowledge that the security of her initial investment is not guaranteed since banks have greater legal protection/priority to reclaim their portion of the ascertained loan. Thus, further speculation and value perception adjustments is recommended Sam discerns to receive an equivalent return on investment (ROI) as the banks through the 2-year fixed mortgage. Final Summary Throughout the entire valuation report, 3 market value and 1 investment value estimate were generated. In determining the final reconciled market value of Freestone Place, my discussion below justifies the most appropriate valuation method/approach using my personal judgement and research. The cost approach has generated a market valuation of $590,000, the lowest across all four estimates. Moreover, due to the considerable imperfections of the data (e.g. – price indexes, asking prices), particularly when determining individual land cost, my best judgement would fall around 7% significance at most. Accordingly, the sales comparison approach (most appropriate for residential housing) generated an approximate value of $870,000. Finally, the direct capitalisation method was two underlying point estimates. The market valuation (using market-derived cap rate of 3.2%) estimated approximately $695,000. Whereas the investment valuation (using RBNZ 2-year fixed mortgage loan) estimated a slightly lower valuation at $601,090.2 Acknowledging that residential real estate’s value is founded under historical perceptions, the sales comparison approach provides with the most accurate glimpse of 18 Freestone Place’s most probable market value through similar recent transactions. As for improvements, incorporating mass valuations standards within the Waitakere region would be preferable as doing so should provide a narrow range of plausible valuations under greater sample size. Surprisingly, our final valuation estimate was only $15,000 lower than Homes.co.nz’s HomeEstimate valuation for 18 Freestone Place. Although their alternative methods are centred on mass valuation, our methods for valuing 18 Freestone Place is equal, if not more accurate than a broad view of Auckland housing. 10

https://www.rbnz.govt.nz/statistics/key-graphs/key-graph-mortgage-rates

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