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ยป Understanding Your Property Valuations
Date published: 14/08/2011
Understanding Your Property Valuations
An individual property can be viewed from different perspectives such as home owner, investment or development and therefore the value of that property will be determined accordingly from that perspective. Knowing how and who values your property will assist you in making an informed decision about the buying, selling and holding process.
There are 3 main types of valuations:
1. Valuer General / Council Valuations
2. Certified Valuers / Bank Valuations
3. Real Estate Agent Appraisals / Market Value
Valuer General/ Council Valuations
Dependent upon which State or Territory you live in, it is usually the role of the Valuer General to oversee and provide updated land valuations for all properties in a local government area and to maintain complete, accurate and as current as possible valuation rolls for that State or Territory. Valuations are conducted annually in SA, QLD & ACT, every 2 years for VIC, every 3 years for NSW, WA & NT, every 6 years in TAS with a third of councils every 2 years.
The Valuer General is responsible for:
o the provision of fair, accurate and consistent land values for rating and taxing purposes
o the determination of compensation following the compulsory acquisition of land
o providing leadership to the valuation industry and profession
o providing statutory valuations as required under the Land Act for that State or Territory
The results of these valuations are provided to:
1. the Office of State Revenue (OSR) annually who manages and determines a landowner's land tax liability. Your principal place of residence is generally exempt from land tax.
2. local councils and other authorities such as Water Boards & Emergency Services as a basis for the levying of rates and taxes.
3. departments to determine State land lease rent
4. landowners via their Notice of Valuation, which is issued when their local government area is revalued.
The Register of Land Values contains the following information:
o the ownership of the land
o the occupation of the land
o the value of the land
o reference to the title of the land
o the location or description of the land
o the area of the land, and
o any other information as required by Valuation of Land Act for that particular State or Territory.
Land values and council rating
Councils use these land values to assist in the calculation of rates for local residents in one of three ways.
1. A combination of the land value of the property and a fixed amount per property.
2. Entirely on the land value of the property.
3. Entirely on the land value but subject to a minimum amount.
Fluctuations in land values don't necessarily lead to similar changes in rates. Rates depend on each councils rating structure and the limits to increases set by the various State & Territory governments. The land value does not generally reflect the full sale price that could be obtained for the property.
If you want to find out how your rates are calculated, contact your local Council.
Land valuation process
Whilst each State or Territory differs in its approach and methodology, the general basis is that values are calculated using either the “unimproved land value” or the more common “site value” method. For the purpose of this article, I’ll use the NSW & QLD methodologies for the explanation of each:
NSW
o Values refer to land value only, which does not include the value of your home or other improvements.
o Most land in NSW is valued using mass valuation, where properties are placed together and valued in groups called components. The properties in each component are similar or are likely to change in value in a similar way.
o Within each component, at least one representative property is valued individually each year to measure how much the value has changed from the previous year. The change in value is then applied to all properties within the component to determine their new value.
o Before undertaking valuations, valuers will inspect and analyse a large number of sales in a locality to gain in-depth understanding of what is happening in the real estate market. This information and the valuer’s expertise are then used to value the representative property.
o Where mass valuation is not appropriate, valuers will individually value the property.
o The most direct evidence for assessing land value is to compare the property being valued with the sale price of comparable vacant land sold around the time of the valuation date.
o During the valuation process, the valuer will examine the breadth of the real estate market including both vacant land and improved property sales. Valuers make allowance for the added value of any buildings or other structures on the land.
o Unsuitable sales, for example those between related parties, are not used to determine land values.
o When comparing property sales to the land being valued, the valuer may take a number of factors into consideration, including:
- The location of the land, size & shape
- Soil type and land surface, such as slope
- Town planning controls and constraints on use, such as heritage restrictions
- Nearby development and amenities, such as parks, views, public transport and busy roads.
o Valuations are based on certain assumptions, including the property being vacant. The value of a home or other structures and improvements is not included. However, land improvements remain part of the land value, for example clearing, draining and filling of land.
Strata site land values
o The Valuer General is responsible for determining the land value for the whole site of a strata scheme. The valuation will take into consideration the most valuable possible use for the whole site. This may exceed the current level of development on the site.
o The land value for individual strata units for council rating and land tax purposes is calculated using the land value for the whole site of the strata scheme and apportioned based on the unit entitlement listed in the strata plan.
o The Valuer General issues the secretary of the strata plan or the owners’ corporation with a Notice of Valuation showing the land value for the whole site of a strata scheme that will be used for rating purposes.
QLD
From 3 May 2011, across 58 rateable LGA’s in Queensland, they have used the new site value methodology to value non-rural land and the unimproved value methodology to value rural land.
Most landowners have seen very little difference in their new valuation as a result of the introduction of site value. Where there have been substantial site works made to land, landowners may see an increase in the value of the land. Approximately 95 per cent of residential land in Queensland has not been significantly affected by the change in valuation methodology. However, the valuation of some residential land may have increased, such as land with water frontage. Other types of land also saw a change in value to reflect the difference in value between the land in its natural state (unimproved value) and its current state (site value).
For example, industrial estates that have been heavily filled, retained or levelled have seen the value of these improvements included in the land’s value.
The new site value methodology has resulted in some properties, mainly commercial properties with significant leasing arrangements, having a reduction in their statutory land valuation as a result of the intangible elements no longer being considered in their valuation.
Site value is similar to the market value of the land in its current state. It includes the value of any site improvements made to the land including filling, clearing, levelling and drainage works. The following works do not constitute site improvements or considered when assessing site value under the Act:
o structural works carried out after the land has been prepared for development (e.g. houses, sheds, fencing, dams, landscaping and other such improvements on the land)
o minor works such as providing soil for gardens, retaining walls for landscaping purposes, pruning or removal of trees for beautification purposes, excavations for pools, spas or fish ponds
o excavations for underground car parks or the footings/foundations of a structure do not constitute site improvements, nor do internal roads and driveways, services such as water and sewerage pipes or associated excavations.
o any agreements for leases, development approvals or infrastructure credits and their added value.
For further information on the exact methodology used for your property, visit the State or Territory’s own Valuer General or Office of State Revenue (OSR) websites.
The benefit of knowing your land value will help you in determine your portfolio’s risk to land tax. If your combined portfolio in a particular state exceeds the threshold, you will be liable for land tax. Knowing your combined value will determine if you should look to purchase your next investment in another State. In saying this, you should always seek to spread your risk by purchasing different classes of property in different states. This will not only assist you with the land tax issue, but you will take advantage of all the property cycles happening around Australia.
To assist you in determining your land tax risk, here are the thresholds for each state before tax is applicable (this does not include amounts after this threshold and how they are calculated – visit the Office of State Revenue for each state for this calculation):
Queensland
Individual owned - $599,999
Company/Trustee owned - $349,999
New South Wales
Individual/company/trustee owned - $387,000
Victoria
Individual/company/excluded trustee owned - $249,999
Non excluded trustee owned - $24,999
South Australia
All land owners - $300,000
Western Australia
Individual/company/trustee owned - $300,000
Tasmania
All land owners - $24,999
VALUERS
Valuations are ordered when a definitive value for a property where finance, settling a dispute, or establishing the value of a deceased estate is required.
There are many valuation firms that are hired both by buyers or a buyers agent, vendors & developers and lending institutions, bringing an independent eye that can provide essential knowledge to ensure that all parties can make an informed decision about a particular property on the market and its deemed market value. The valuation of residential property is a diverse field and includes suburban residential, prestige homes, beachfront dwellings, thousand-lot multi stage residential subdivisions to smaller scale unit developments and commercial/retail.
A Certified Practising Valuer will conduct a full inspection of the nominated property, carry out research and analysis into the local market with comparisons to recent sales and submit a detailed report providing information and commentary on issues affecting the current market value of the property.
Typically reports include:
o An executive summary detailing the property and business.
o A site appraisal specifying:
- Land particulars
- Improvements
- Market comments
- Income analysis
- Sales evidence
- Rationale
o A valuation reporting summing up the analysis.
There are 3 ways a valuer may value the subject property:
o Full value – this involves the valuer undertaking a full inspection of the property, including an internal inspection.
o Kerbside – the valuer literally stops outside the property and does not undertake an internal inspection.
o Desktop – this involves the valuer collecting comparable sales data based on the description of the property and where no physical site inspection takes place.
Depending upon who has ordered the valuation determines how they will use it.
For buyers who are not sure if they are paying too much or how much to offer, a pre-purchase valuation will give reassurance about the price and many other aspects of the property before an offer is made. As a buyer, you can use the valuation to your advantage as a bargaining tool if the valuation comes in lower than the vendor is asking. You may also be able to do your own research and provide the valuer with comparable sales that are favourable to you. The valuation may also confirm that what you intend to offer or what the vendor is asking is market value – but it doesn’t hurt to always put in a lower offer – you just never know if the vendor will accept or not.
When ordering your independent valuation, you may ask for it to be formatted so that it can also be submitted to the bank in their formatted criteria and ask for it to be assigned to say in 2 bank names, therefore when the time comes for the bank to order a valuation, you have one on file that hopefully matches what you are trying to achieve – lower than market value or at least on contract price. You may also be able to ask the bank to provide you finance based on the higher valuation, rather than contract price, therefore providing you with a higher LVR.
When selling, present the valuer with information including recent comparable sales and points about your property that presents it in the best light. Ensure the presentation reflects the price you are trying to achieve, e.g. gardens are manicured, cleaned fixtures and fittings throughout the property, declutter or accessorise fashionably.
On the flipside, if you want a new valuation on your existing asset base so you can draw upon the equity to further your portfolio, this is when it would be in your interest to get the valuation as high as possible.
For developers and vendors, the report will give them an idea of how to market their property and at what price point. Too high a price and they won’t get the buyers they require, too low a price and they won’t make the profit margin they projected. Again, an independent valuation is a tool they can use to provide buyers proof that what they are asking is fair market price.
Lending institutions will always order a valuation when you are taking out a loan for a new purchase or if you want to draw equity from your existing portfolio. They need to know that the money they are lending you is financially secured by that asset and this will form the basis of their LVR (loan to value ratio) and will also provide them with a realistic sale price should they need to sell the property quickly (normally referred to as a fire sale).
Find out which valuers sit on particular banks panels by either asking the bank, broker or asking the valuer themselves. Also find out which areas they usually value and what types of properties they value. A bank won’t accept a valuation if the valuation firm is not on their panel.
REAL ESTATE AGENTS
A real estate agent has the obligation to get the best price for the vendor and will use databases and their knowledge of the local market and recent sales to provide a “market appraisal” when you wish to sell your property. These appraisals are intended as a guide only and are not the definitive price which may be achieved for that property.
Appoint an Agent that is acutely familiar with your suburb and which does not work outside the area. An agent that works outside of the area may result in an appraisal that is too high and not achievable, or too low essentially providing a property below market value.
Be wary of agents that quote an extremely high price and therefore providing you with an unrealistic expectation of the final sale value. They may be doing this just to get your business and you may wonder why you do not have any viewings. Vendors are soon conditioned to lower their asking price to meet the market feedback. Again, conduct your own due diligence on pricing in your local area.
On the other hand, agents that value too low, not only hurt the vendor with the end result, but can ultimately bring down values of an area if the sale is then used as comparable data with professional valuation firms and professional property databases, such as RP Data.
As a buyer, using the services of professional database firms and independent valuers as a tool for your negotiation with the vendor and agent, plus finding out the true motivation for that sale (e.g. bought elsewhere, divorce, financial stress) and using it to your advantage, may assist you in saving thousands of dollars and purchasing that property under market value.
If your offer has been accepted at a particular price and the valuation comes in very low after the initial offer period, I would ask for strong evidence as to why you would continue with the purchase at original agreed price based on the valuation you have received.
At the end of the day, true market value is achieved when both parties agree on the final sale price and a settlement occurs.
Whilst investing can be fun, exhilarating, scary & heart stopping, it’s still a business and should be treated as such because that investing business could be worth millions. I myself have called our investing “B’dearys Vision”. It gives it a name and therefore is treated as a business entity. Just because you like the tiles in the bathroom, or the swimming pool or the colour of the walls, does not necessarily make it a great investment and it may cost you dearly investing with your heart.
Swarnie Condon
Property Mentor & Author
Inspirational People in Property
Whilst every effort has been made to ensure accuracy of this article, please refer to your State or Territory’s Valuer General’s Office or Office of State Revenue for more detailed information and seek independent advice pertaining to a particular purchase.
Swarnie Condon is passionate about property investment with a total of 9 properties in her portfolio. Swarnie is co-author of the book Journeys Along the Property Path and Support Member with The Investors Club.
Now that you have read this, what do you think? Do you have other ideas? Please share you views with other members (eg by blog or on the discussion forum) and/or request professional member(s) to contact you directly.
