Issues identified by ACTVO when dealing with private valuer submitted valuation assessments
- The API Valuer members Code of Professional Conduct states that a member must not adopt the role of an ‘advocate’ for their client but should act with independence and impartiality in producing an LVC assessment. Ideally the LVC valuation should also be consistent with assessments of the market value of land assessed by the valuer in other exercises, such as mortgage and stamp duty purposes.
- Assessing a high $rate on a particular permitted use in the ‘before’ value situation and then either ignoring the permitted use altogether or assessing the same specific permitted use at a significantly lower rate in the ‘after’ value situation, despite the specific permitted use still being a significant component of the overall purpose clause, could be viewed as an inconsistent approach for the purposes of the LVC.
Any sale of the subject site should be included with a full analysis. If there are questions regarding the validity of the subject sale then the transaction should be commented upon in comparison against other sales. An explanatory statement outlining the reasons for any qualification or setting aside the subject sale should be stated in the valuation report. Dismissing the subject sale merely on the basis of a comment that it is ‘out of line’ would be insufficient reasoning for the purposes of the LVC process.
Comparable sales should be inspected. This is especially important where comparable sales require analysis to consider the value of retained structural improvements in order to derive a deduced market value component of the underlying land. A statement should be included within the report noting that the sales have been inspected.
- The details of any sale submitted as comparable should be correct as far as is practicably obtainable. The details and analysis of a sale should be consistent across other forms of valuation reports, especially those authored by the same valuation firm.
- The selection of sales should include the most relevant transactions that have occurred in the locality around the relevant valuation date. If the selection include part transactions or uncompleted sales then these should be qualified in the report with an explanation as to the reason for inclusion. If the selection of sales is limited an explanation should be provided.
- The physical attributes and the terms of sale of the property should be verified and appropriate adjustments made for any other requirements such as demolition, offsite works, remediation and additional car-parking beyond standard requirements etc. The development requirements (as submitted) and an estimate of costs are generally provided in the development application documentation.
- The development potential and profitability of a site can also change significantly with different zoning or housing affordability requirements. These will vary between locations. The valuer should also address these issues in the analysis of a sale where pertinent.
- Any additional considerations (such as decontamination) should be supported by an appropriately qualified expert report, especially where these are undefined in the development application, but are significant in the valuer’s report with respect to the uplift in value.
- Valuers should always refer to the town planning advice submitted by the Crown Lessees as part of their Development Application. Generally the advice should detail the correct interpretation of the proposed varied purpose clause or provide a contact where these issues can be clarified. Alternatively the EPSDD may also assist with an interpretation.
- The valuer should where practical address all approved varied Crown Lease purpose clauses as they consequentially occur when a number of differing separate DA’s are submitted over the same property around the same time period and also take into account situations where prior DA proposed variations submitted were not completed. This will significantly reduce the risk of an incorrect valuation basis being adopted.
- Deletion of GFA restrictions or significant easements to be removed to improve building rights or reduce building setback requirements
- Assessing a DA variation as administrative matter such as with removing a 5 year restriction on lease variation from a Crown Lease purpose clause
A potential conflict of interest must be disclosed in the valuation report. Conflict of Interest situations may arise if you undertake valuations for business partners, family members or work colleagues in the same valuation firm. The valuation may be referred back to the applicant for review if it is considered that a significant ‘conflict of interest’ situation exists.
Requests for additional valuation detail (such as ACTVO’s QA requests) to support the DA assessment must be supplied when requested via official EPSDD processes. Provision of the full valuation detail helps with understanding the basis of the valuation, streamlines the approval process and is therefore a critical part of the LVC process.
A person who is not an accredited valuer but is in “training” with a valuation firm is able to counter sign a LVC valuation report along with an appropriately experienced, fully accredited valuer from the same valuation firm. The credentials of both persons should always be stated in the professional format of the report as required by API or the requirements of other member institute standards.
- The direct comparison method is the preferred approach for LVC valuation matters. A hypothetical development method is regarded as a check method only and may be considered if it reflects a scale of development appropriate for the subject property and the assumptions appear reasonable.
- However, adopting a hypothetical development proposal that is neither legally or physically economically feasible may mean that no weight is given to the outcomes of the hypothetical approach e.g. providing a valuation on the basis of a hypothetical office building proposal of over 20,000m² GFA in a locality where existing office buildings are being re-purposed or demolished and redeveloped for alternative uses.
The entire site of the Units Plan must be valued as the LVC exercise refers to the whole of the land within the Crown Lease and not an individual part of the land occupied by a separate unit. If an LVC valuation is submitted based on an individual units proportioned land value as part of the development application, it will be referred back to the applicant for amendment.
The use of rental evidence is an acceptable approach to provide a guide to the value of an added permitted use. However, the rents require a full analysis including details of incentives, outgoings, condition of improvements and expected yields for the use, etc. that would assist in determining underlying land values.