Capital Improved Value vs Market Value

“What’s my property worth?” Every property owner wants the answer to this question at some stage or another. But property valuation can actually be a complex topic, especially when terms like market value and capital improved value are thrown around.

If you’re buying, selling or investing in real estate in Australia, knowing the difference is crucial. This guide will break down these terms in simple terms to help you make informed decisions.

What is capital improved value?

Capital improved value is the total value of the land and any improvements made to it, such as buildings, structures or landscaping. The term is commonly used by councils for calculating property rates and taxes.

A few key points about capital improved value:

• Includes the value of the land plus improvements.
• Assessed by local government or a valuer for rating and taxation purposes.
• Usually updated annually to reflect changes in property and land values.

For example, if your land is valued at $300,000 and your home and improvements are valued at $500,000, your capital improved value would be $800,000.

What is market value?

On the other hand, market value refers to the estimated price a property would fetch in the open market. Simply put, it’s the amount a buyer is willing to pay for the property and what a seller is likely willing to accept under normal conditions.

Some key points about market value:

• Determined by current market conditions, such as supply and demand.
• Takes into account property features, location and comparable sales in the area.
• Can fluctuate significantly depending on economic factors, interest rates and local trends.

For example, if similar properties in your neighborhood recently sold for $800,000, your property’s market value is likely to be in the same range, assuming all other factors are similar.

How are market value and capital improved value different?

The primary distinction between market value and capital improved value lies in their purpose and calculation:

Market Value	Capital Improved Value
Represents what the property could sell for in an open market.	Used to calculate rates and taxes, not tied to market conditions.
Driven by buyer and seller behavior, economic conditions.	Determined by councils or valuers based on fixed criteria.
Subject to daily or seasonal fluctuations.	Updated periodically (annually or biannually).

Why does the difference matter?

1. For buyers and sellers:
   • Market value is the figure you’ll deal with most during a transaction, as it represents what someone is willing to pay.
   • Capital improved value might give you a sense of the property’s worth for council tax purposes but doesn’t necessarily reflect its true market potential.
2. For investors:
   • Understanding capital improved value can help you budget for property taxes and rates.
   • Market value provides insight into your property’s appreciation potential or how much you might gain when selling.
3. For property owners:
   • Discrepancies between capital improved value and market value can affect your property rates or mislead you about your property’s actual sale value.

Common questions about market value and capital improved value

1. Why is my property’s capital improved value lower than its market value?
   Capital improved value often lags behind market value because it is assessed less frequently and doesn’t account for current market dynamics.
2. Can capital improved value influence my property’s selling price?
   Not directly. While capital improved value reflects a baseline valuation, buyers and sellers rely on Market Value when negotiating a sale.
3. What should I focus on when pricing my property for sale?
   Investors should typically consider market value, ideally a figure obtained from a professional valuation report (or at the very least an appraisal from your trusted real estate agent) as it’s the most accurate reflection of what buyers are willing to pay.

Understanding the differences in property values ensures you’re better equipped to navigate property transactions and avoid surprises. With a clear understanding of these concepts, you’ll be one step closer to achieving your property goals. Because as they say, knowledge is power.

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