On Land Valuation

Press, Volume CV, Issue 30983, 12 February 1966, Page 10

On Land Valuation

HpHERE is a great deal of loose thought about what is meant by a valuation. Perhaps it is clouded by the reasons for a valuation. One person wants a property valued as part of a loan application, another may require advice as to the price he should pay, or it may be the valuation is for death duties or to dissolve a partnership. I remember one involved case before the Land Sales Committee in the mid 19405. On the death of the owner, the property was valued for a death duty assessment at £2O an acre. The trustee immediately lodged an objection. Before this could be heard the beneficiaries required the farm to be sold by auction and two of them, with possibly some other party as well, ran the price up to £27 an acre. The farm had to be valued by the Crown for the Land Sales Committee. The mortgagee felt that he should be represented and he also had the farm valued. The committee was faced with this situation: death duty. £2O: mortgage, £l9; Crown valuation, £l9; and a sale at £27 per acre.

In most cases when people say they require a' valuation they are really thinking of price and not value. “What can I get for the farm?” or “What should I pay for a certain farm?” Again, “if that farm (two miles away) is worth £75 an acre mine would bring £9o!’’

Which is value and which is price? When you wish to sell you think of price—the maximum you will receive—when you buy you are again thinking of price but the minimum you would have to pay. When you want mortgage finance the mortgagee thinks of value and he lends on the valuation. The word valuation is used far too often to mean market price. This, of course, is the figure quoted in the paper and discussed over the rails at the clearing sale, at Addington, or wherever tamers get together and discuss such things. The market price is untrammeled by any restrictions or tags and is exactly what it says—the price the property would bring on the market.

In buoyant times this is almost invariably above the true valuation on the basis of the willing-seller, willing-

buyer basis. Here either party is free to withdraw and neither has any necessity or compulsion to act. I said that price is almost invariably above value. 1 was asked to advise on the price for a wet clay downs property a while ago. It was mid-winter and obviously the wrong time to sell such a farm. The first advice I gave was to wait till the following February but the farm was immediately auctioned at £5 an acre below the market price I sug-

[This is the first part of an artj.de on land valuation written by Mt M. B. Cooke, senior lecturer in rural valuation at Lincoln College. Mr Cooke says that the views expressed are his own, and may not necessarily be those of the college or of the New Zealand Institute of Valuers, of which he is president ]

gested. This was equal to the value I put on it for a possible mortgage. So price and value were similar then. The purchaser kept the farm until the following February and sold it when it looked at its best. It brought the market price 1 had originally suggested and there had been no significant change in economic conditions meantime. Valuation must be tied to a time, because external factors can and do change. Sometimes this is rapid and prices fall or sky-rocket according to circumstances. Therefore a valuer always dates his valuation. He examines all sales and all other data and forms his opinion at that time. It is an opinion based on the facts surrounding the property, judiciously interpreted to arrive at a sound conclusion. He should not wear dark glasses and say “Prices are ridiculously high. I’ll ignore them.” That would be just his view without considering the facts. His job is to interpret the opinion as expressed by the buyers and sellers on the sales that take place. He cannot consider only the low sales or only the high sales. Both would soon lead him into trouble.

Why did the low sale take place? What were the motives of the seller? 11l health, bankruptcy, pressure from the mortgagee, c- a family upset? All of these appear to have caused a forced sale. The valuer must

ask himself: “What would this farm have brought if there had been no compulsion to sell?” In the same way the valuer must examine high sales. Who bought the farm and why? Did it join his own o did he buy it for his son? Had he sold out very well elsewhere and had more than the average amount of ready cash? Had he waited for years to buy a farm in this particular area and so he gratified his desire at considerable cost? It happens far more often than we realise. Now in New Zealand there can be only one value for a farm at one time. That may seem strange after talking of mortgage value, death duty value while the business world talks of fair sale value. If properly interpreted, under the willing-seller, will-ing-buyer concept as accepted in the courts, these are all the same. A death duty valuation is made as at the date of death and takes into account all the assets of the deceased. It could well include unharvested crops which normally are part of the current account and are not valued specifically with | the land. (To be continued)