Valuation Methodology Exam

Question 1

What are the 6 purposes of Valuation?

Answer 1

1. Rating Purposes - Establishing Land value for Council Rates
2. Tax Purposes - Establishing Land value for Land tax on Investment Properties
3. Stamp Duty - Establishing Property Value to assess Stamp Duty on Transfer of ownership
4. Capital Gains Tax - Establishing Property Value to determine CGT for Investment properties
5. Goods and Services Tax - Establishing Property Value to assess payment of GST on supply of property
6. Compensation - Compulsory acquisition of property by Government (Land acquisition (Just Terms Compensation) Act, 1991)

Question 2

What are the good qualities of a Valuer?

Answer 2

Ethics 
Good repute
Integrity
Confidentiality
Impartiality

Question 3

What are the Statutory Purposes?

Answer 3

Rating Purposes
Taxing Purposes
Stamp Duty
Capital Gains Tax
Goods and Services
Compensation

Question 4

What are Private Purposes?

Answer 4

1. Purchase of Real Estate
2. Sale of RE
3. Mortgage Purposes
4. Family Law
5. Feasibility of Property Development

Question 5

What is Professional Negligence?

Answer 5

A party has relied upon formal information provided by you

May be seeking damages if advice is negligent

Usually includes doing something that an ordinary, reasonable, and prudent person would not do, or not doing something such a person would do considering the circumstances, situation, and the knowledge of parties

Dereliction of duty,non-performance of duty,non-fulfilment of duty,irresponsibility

Question 6

What are the Six Key points of Willing Buyer (WB) / Willing Seller (WS) Theory?

Answer 6

1. The parties arent over anxious (The current market has buyers anxious (FOMO))
2. Both parties are willing to trade on a certain day (Settlement)
3. The parties are cognisant of all relevant details
4. Parties are business-like in their decisions
5. The parties are amicable and at “arms-length” (Not related or associated)
6. The price reflects the highest and best use of the land

Question 7

What is the Maurici Principle? (Summary)

Answer 7

Waterfront land at Hunters Hill located in a heritage conservation area.

As at base date 1 July 1997 Land valued by the Valuer General at $2,440,000 based upon 4 vacant land sales.

The owner of the land objected to the land value and in turn the Chief Commissioner of State Revenue disallowed the objection.

The Valuer General 26 August 1999 advised Maurici that the land value was to be reduced to $2,000,000

26 August 1999, the appellant appealed to the Land and Environment Court contending a land value of $1,250,000.

The court determined the land value at $1,950,000

Question 8

What Is the Maurici Principle? (High Court View)?

Answer 8

Improved sales are used daily for the purposes of statutory valuations under provisions similar to s6A(1) of the Valuation of Land Act, by subtracting the added value of the improvements to them from their sale prices to derive unimproved values.

But that does not mean that the respondent is entitled to ignore reasonably contemporaneous sales of comparable improved land. Such sales, particularly in the case of a scarcity of vacant land cannot be disregarded. The contrary approach is required by the Act.

Question 9

What Is the Maurici Principle? (High Court Decision)?

Answer 9

Sent back to the L&E Court, who reconsidered the value of the land with reference to both vacant land and improved property sales.

In summary, it found the scarcity value attributed to the property to be Nil

Increments value for P&R Factor when adjusting improved sales back to land value was found to be 27%. (refer to 105-107)

The analysis of vacant land sales in conjunction with improved sales resulted in the court’s determination of the land value at $1,890,000.

Question 10

What are out of line sales?

Answer 10

An Out of Line Sale is one that does not meet the willing buyer willing seller criteria as defined in Spencer v The Commonwealth 1907 and subsequent definitions of Market Value.

Care must be taken to delete these “out of line” sales before forming an opinion as to the market value of a particular property

Question 11

What is good evidence for Market Value?

Answer 11

1. Large number of sales
2. As recent as possible
3. Sales with tenure i.e. vacant possession
4. Good comparison
5. Nearby sales
6. Binding contract
7. No unusual circumstances
8. Normal terms and conditions

Question 11

What are the reasons for Out of Line Sales?

Answer 11

Off Market Sale - Seller approached by buyer and persuaded to sell.

Sentimental - Buyer influenced by family or sentimental reasons.

Overseas Buyer - Unfamiliar with local market.

Acquisitions / Resumptions - May include on top of market value disturbance, moving costs, legal costs.

Mortgagee In Possession - Anxious vendor e.g. possibly below market value.

Related Parties or Companies - Not at arms length and usually below market value.

Question 12

How do you arrive at Land Value from sale price?

Answer 12

Improved Sales - may have derelict improvements or vastly undercapitalised improvements, this sale may be classified as basically land value