Current rural valuation practice : a survey of valuers and agribusiness managers on farm management and sustainable rural land use

Over the past 20 years the nature of rural valuation practice has required most rural valuers to undertake studies in both agriculture (farm management) and valuation, especially if carrying out valuation work for financial institutions. The additional farm financial and management information obtained by rural valuers exceeds that level of information required to value commercial, retail and industrial by the capitalisation of net rent/profit valuation method and is very similar to the level of information required for the valuation of commercial and retail property by the Discounted Cash Flow valuation method. On this basis the valuers specialising in rural valuation practice have the necessary skills and information to value rural properties by an income valuation method, which can focus on the long term environmental and economic sustainability of the property being valued. This paper will review the results of an extensive survey carried out by rural property valuers in Australia, in relation to the impact of farm management on rural property values and sustainable rural land use. A particular focus of the research relates to the increased awareness of the problems of rural land degradation in Australia and the subsequent impact such problems have on the productivity of rural land. These problems of sustainable land use have resulted in the need to develop an approach to rural valuation practice that allows the valuer to factor the past management practices on the subject rural property into the actual valuation figure. An analysis of the past farm management and the inclusion of this data into the valuation methodology provides a much more reliable indication of farm sustainable economic value than the existing direct comparison valuation methodology.

Current rural valuation practice : a survey of NSW valuers and agribusiness managers

Despite the advances that have been made in relation to the valuation of Commercial, Industrial and retail property, there has not been the same progress in relation to the valuation of rural property. Although number of rural property valuations also require the valuer to carry out a full analysis of the economic performance of the farming operations, as well as the long term environmental viability of the farm, this information is rarely used to assess the value of the property, nor is it even used for a secondary valuation method. Over the past 20 years the nature of rural valuation practice has required most rural valuers to undertake studies in both agriculture (farm management) and valuation, especially if carrying out valuation work for financial institutions. The additional farm financial and management information obtained by rural valuers exceeds that level of information required to value commercial, retail and industrial by the capitalisation of net rent/profit valuation method and is very similar to the level of information required for the valuation of commercial and retail property by the Discounted Cash Flow valuation method. On this basis the valuers specialising in rural valuation practice have the necessary skills and information to value rural properties by an income valuation method. Although the direct comparison method of valuation has been sufficient in the past to value rural properties the future use of the method as the main valuation method is limited and valuers need to adopt an income valuation method as at least a secondary valuation method to overcome the problems associated with the use of direct comparison as the only rural property valuation method, especially in view of the impact that farm technical, financial and environmental .management can have on rural property values. This paper will review the results of an extensive survey carried out by rural property valuers and agribusiness managers in NSW, in relation to the impact of farm management on rural property values and rural property valuation practice.

Will Queensland tort reform change valuation practice and valuers liability

It has been common practice over past property boom and bust cycles in Australia for financial institutions and property owners who have suffered a loss in the property downturn to sue valuers for negligence. Damages claimed are based on the price differential between the valuation at or nearing the peak of the market and the subsequent sale in the market downturn. However, the context of valuers liability has become increasingly complex as a result of statutory reforms introduced in response to the Review of the Law of Negligence Final Report 2002), in particular the introduction of Civil Liability Acts introducing proportionate liability provisions. Legislative reforms have had some positive outcomes for Valuers, however valuers need to continue to maintain high ethical standards, independence and professionalism in valuation practice.

Business valuation practice issues under Family Court of Australia proceedings

The study investigated the valuation of businesses valued for property settlements in the Family Court of Australia and related issues. The findings have important implications for the Family Court of Australia, the legal profession and the accounting profession in highlighting deficiencies in valuation practice at various stages of the settlement process.

The use of heuristics in valuation practice : implications in a changing market

Despite the existence of prescribed frameworks, valuation remains a cause of much controversy and variety of opinion. It does not matter whether procedures are undertaken in exactly the same way, the conclusion of ‘value’ will vary from valuer to valuer – sometimes considerably. This uncertainty within valuation is founded on property’s heterogeneous nature and the imperfect market that is the property market; in addition to the unpredictability of human behaviour in making judgements (French and Gabrielli 2004). Uncertainty, in valuation is found in the amalgam of locational, physical and legal characteristics and innumerable other forces which control and energise the property market (Whipple 1995). Particular irregular occurrences, or drastic changes in property markets, from either within market evolution or external forces, for example the creation of global financial markets, cause further uncertainty for valuers and provides challenges in identifying ‘market value’ in valuation practice. The praxis of valuation in a commercial sense navigates this complexity using a combination of algorithms and heuristics to identify the value of a property. The application of theoretical mathematical algorithms based on economic theory (Brown 1995), is augmented by valuers’ ability to apply appropriate adjustment based on their knowledge of the market, their ability to analyse, assess and compare the attributes of a property in comparison to its market, and their practical experience (Sliogeriene 2008). Despite the necessity of algorithms, the application of appropriate adjustments and assumptions are important in arriving at a value. This paper is a critical reflection on the basis of valuation practice as guided by standards, methods, and ethics (algorithms), and the use of heuristics in practice. This is important because changes within property markets challenge the inter-relationship between these two aspects of valuation practice. Through the authors’ industry experience and a review of previous research and statements of practice norms this paper provides an analysis of the ability of valuers to address market change in their valuation practices.

The use of income valuation methods to value rural property

Despite the advances that have been made in relation to the valuation of commercial, industrial and retail property, there has not been the same progress in relation to the valuation of rural property. Although the majority of rural property valuations also require the valuer to carry out a full analysis of the economic performance of the farming operations, this information is rarely used to assess the value of the property, nor is it even used for a secondary valuation method. Over the past 20 years the nature of rural valuation practice has required rural valuers to undertake studies in both agriculture (farm management) and valuation, especially if carrying out valuation work for financial institutions. The additional farm financial information obtained by rural valuers exceeds that level of information required to value commercial, retail and industrial by the capitalisation of net rent/profit valuation method and is very similar to the level of information required for the valuation of commercial and retail property by the Discounted Cash Flow valuation method. On this basis the valuers specialising in rural valuation practice should have the necessary skills and information to value rural properties by an income valuation method. Although the direct comparison method of valuation has been sufficient in the past to value rural properties the future use of the method as the main valuation method is limited and valuers need to adopt an income valuation method as at least a secondary valuation method to overcome the problems associated with the use of direct comparison as the only rural property valuation method. This paper will review the results of an extensive survey carried out by rural property valuers in New South Wales (NSW), Australia, in relation to the impact of farm management on rural property values and rural property income potential.

Carbon sequestration: Evaluating the impact on rural land and valuation approach

This thesis uses semi-structured interviews and documentary analysis to explore the impact of carbon sequestration rights on rural land in Queensland and to determine whether current rural valuation knowledge and practice is equipped to deal with these rights. The carbon right in Queensland is complex and subject to significant individual variation. The nature and form of this right will determine whether it has a positive or negative impact on Queensland rural land. Significant gaps in the knowledge of industry stakeholders, including rural valuers, concerning carbon rights were found, and recommendations for valuation practice were made.

Benchmarking and valuation issues in measuring depreciation for European office markets

Purpose – The paper addresses the practical problems which emerge when attempting to apply longitudinal approaches to the assessment of property depreciation using valuation-based data. These problems relate to inconsistent valuation regimes and the difficulties in finding appropriate benchmarks. Design/methodology/approach – The paper adopts a case study of seven major office locations around Europe and attempts to determine ten-year rental value depreciation rates based on a longitudinal approach using IPD, CBRE and BNP Paribas datasets. Findings – The depreciation rates range from a 5 per cent PA depreciation rate in Frankfurt to a 2 per cent appreciation rate in Stockholm. The results are discussed in the context of the difficulties in applying this method with inconsistent data. Research limitations/implications – The paper has methodological implications for measuring property investment depreciation and provides an example of the problems in adopting theoretically sound approaches with inconsistent information. Practical implications – Valuations play an important role in performance measurement and cross border investment decision making and, therefore, knowledge of inconsistency of valuation practice aids decision making and informs any application of valuation-based data in the attainment of depreciation rates. Originality/value – The paper provides new insights into the use of property market valuation data in a cross-border context, insights that previously had been anecdotal and unproven in nature.

Sustainability - the crucial challenge for the valuation profession

Valuation has a pivotal role in increasing the level of sustainability in the built environment. To date, sustainability has received limited attention in valuation practice, and as a result the relationship between sustainability and market value has not been clearly defined. As a consequence, the commercial investment community are hesitant to invest in sustainability beyond best practice management techniques. Valuers’ lack of acknowledgement of sustainability in valuation practice and its changing role in property investment in the built environment, has had a potentially detrimental impact by limiting investment in sustainability in commercial property. Consequently, this lack of acknowledgment and incorporation of sustainability in practice has the potential to cause chaos within the market in the future. It was found that valuers, per se, are inexperienced and have limited knowledge of sustainability in commercial property. Due to differences between generations of valuers, this paper examines whether ‘younger’ valuers’1 knowledge of sustainability, as a concept, measurement and any possible relationship with market value is more extensive than senior valuers. Or whether senior valuers experiences in the market are more sensitive to the change sustainability is having in the commercial property market. A key issue for the profession concerning sustainability and its effect on the market is the limited channels for knowledge development. The implications of this research are the need for increased curriculum in university education, so knowledge dissemination across the profession can be achieved. The development of knowledge of sustainability and its relationship in commercial property will progress the incorporation of sustainability in valuation practice. As a consequence, this will increase the investment in sustainability in the commercial property market.

The value of sustainability in real estate : a review from a valuation perspective

Purpose – The purpose of this paper is to synthesise the plethora of research that has been conducted into the relationship between sustainability and market value in real estate, by critically analysing the research and the applicability of sustainability and value research in valuation practice.

Design/methodology/approach – The research on the relationship between sustainability and market value in real estate is examined from the perspective of its usefulness to the valuation profession in providing guidance, information and evidence to be used in valuation practice.

Findings – Existing research conducted into the relationship between sustainability and market value has not provided the valuation profession with evidence which would allow the incorporation of normative theories on the value of sustainability in valuation practice. This review highlights the lack of evidence, and the applicability of current research into sustainability and value to the valuation profession in providing guidance and information in valuing real estate incorporating sustainability.

Practical implications – This paper highlights the limited applicability of research to date in regard to the relationship between sustainability and market value for the valuation profession. The lack of historical evidence, data or information on the quantifiable effects on market value of this new trend (sustainability), leaves the valuation profession uncertain as to the relationship between sustainability and market value. There is a probable risk of valuers interpreting strategic research incorrectly, and making inappropriate adjustments or comparisons because of their lack of knowledge and limited sustainability assessment skills. Although there is an evolving body of knowledge, there is a need for extensive analysis of unbiased, evidence-based research in individual and broader markets to provide guidance, evidence and knowledge of the implications of sustainability in the valuation of real estate.

Originality/value – The examination of research investigating the relationship between sustainability and value from a valuation perspective provides an alternative insight into the applicability of current research in valuation practice. The increasing profile and role of sustainability in the real estate sector needs to be addressed in valuation practice; however, the variety of research to date needs to be interpreted by valuers in the correct context. This paper brings to light the applicability of sustainability and value research for the broader valuation profession, and the potential implications of misuse or misunderstanding of that research.

A question of value: a discussion of property pricing and definitions of value

Valuation is often said to be “an art not a science” but this relates to the techniques employed to calculate value not to the underlying concept itself. Valuation practice has documented different bases of value or definitions of value both internationally and nationally. This paper discusses these definitions and suggests that there is a common thread that ties the definitions together.

Valuing for fair rents

'Fair rents' were first introduced in the Rent Acts 1965, to provide a system of rent regulation and residential security of tenure. This research into valuing for fair rents finds practices that are confused, misguided and inconsistent between different parts of the country. A more rational approach to valuation is illustrated through worked valuation examples, but the report recommends other more radical changes to the fair rent system. The study is based on a thorough review and critical analysis of the legislative background, case law, housing market theory and valuation practice. Case studies of fair rent appeals to rent assessment panels are used to explore valuation practice, including implications for the Maximum Fair Rent Order 1999. As a case study of housing regulation and a practical guide to valuing fair rents, the report makes essential reading for valuation practitioners, regulated tenants and landlords, members of the rent service and housing policy makers.