What is the primary purpose of Land Value (LV) in New Zealand rating valuations?
Correct Answer
D) To record the land's value, excluding buildings, for rating
Land value (LV) is the rating valuation's figure for the land as if no improvements had been made on it. Some works on the land itself, such as draining, filling or levelling, are not treated as improvements, so LV is not a pure "unimproved value". Councils use LV, alongside capital value, as a basis for rating.
Why This Is the Correct Answer
Land value is what the land might sell for if no buildings or other improvements had been made, but it includes some work on the land itself, such as draining, filling and levelling. Councils use it for rating, alongside capital value.
Why the Other Options Are Wrong
Option A: To decide how much building insurance an owner needs
Insurance cover is based on the rebuild cost of the buildings, which land value by definition leaves out.
Option B: To calculate the owner's annual land tax liability
New Zealand has no general land tax today; land value is used for rating.
Option C: To set a minimum price at which the property may be sold
Nothing sets a minimum sale price; land value is a rating figure, not a price control.
Deep Analysis of This Valuation Question
New Zealand moved from "unimproved value" to "land value" so that works that become part of the land, such as drainage and filling, are counted with the land rather than as improvements. Councils that rate on land value tax the site rather than the buildings on it.
Background Knowledge for Valuation
The Rating Valuations Act 1998 defines land value as the sum the owner's interest might realise if offered for sale on reasonable terms and no improvements had been made on the land. Its definition of improvements excludes some works, such as draining, excavation, filling and reclamation, so those form part of land value.
Memory Technique
Picture the section with the house, sheds and fences lifted off, but the drainage and levelling still in place: that is land value.
When a question asks what LV measures, think "land without buildings" and remember it is a rating figure.
Exam Tip for Valuation
Do not call LV "unimproved value". It excludes buildings and structures but includes some works on the land itself.
Real World Application in Valuation
A developer compares two sections. The rating valuation for one shows a land value of $750,000 and a capital value of $950,000, so the house adds $200,000. The developer uses the land value as a rough check on the site's worth, while relying on recent vacant land sales for the actual price.
Common Mistakes to Avoid on Valuation Questions
- •Calling land value "unimproved value"
- •Thinking land value includes the buildings
- •Thinking land value is used for insurance or tax
Related Topics & Key Terms
Key Terms:
More Valuation Questions
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What does the 'highest and best use' principle in property valuation refer to?
Which external factor would most significantly impact property values across an entire suburb?
A valuer is assessing a unique heritage building with no recent comparable sales. The replacement cost is $2,000,000, accumulated depreciation is estimated at $400,000, and the land value is $800,000. What is the indicated value using the cost approach?
Under the Rating Valuations Act 1998, what principle must valuers follow when determining rateable values?
- → When using the income approach for valuing a rental property, what is the most critical factor in determining accuracy?
- → A registered valuer is conducting a market analysis for a residential property. Which of the following sales would be considered the most reliable comparable?
- → A commercial property generates annual rental income of $120,000. After deducting operating expenses of $30,000, the net operating income is $90,000. Using a market-derived capitalization rate of 7.5%, what is the indicated value using the income approach?
- → A registered valuer is valuing a unique heritage building with no comparable sales available. The building would cost $2.5 million to construct today, but due to its age and condition, suffers from $800,000 in physical depreciation and $300,000 in functional obsolescence. The land value is assessed at $1.2 million. What is the total property value using the cost approach?
- → Which factor would have the LEAST impact on a residential property's market value?
- → A property's rating valuation shows a capital value of $800,000 and a land value of $500,000. What value of improvements does that imply?
- → A commercial property produces net annual income of $120,000. Using a capitalisation rate of 7.5%, what value does the income approach indicate?
- → When analyzing market trends for valuation purposes, which combination of factors would most strongly indicate a shift from a seller's market to a buyer's market?
- → In the sales comparison approach, which difference calls for an upward adjustment to the comparable's sale price?
- → Which factor would be considered an external factor affecting property value?
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