RURAL
SALES
ANALYZING
RURAL SALES
A
characteristic of non urban valuation is the importance of local
knowledge. This factor makes it extremely difficult for a non local
to appreciate and understand important factors behind and the
characteristics of rural sales. The more common problems will be
considered
in this part.
CAPACITY
OF THE PARTIES
The
non urban valuer has to look more closely behind the circumstances of
a non urban sale to find out the true relationship between the
parties of the transaction. For example, the vendor and purchaser may
have different surnames but are part of the local extended family
which jointly or cooperatively farms the locality. Only local
knowledge can ascertain this fact. Similarly the sale may involve
a
company or subsidiary company that includes the same shareholder(s)
as vendor and purchaser.
MORE
THAN ONE CONTRACT
The
non urban sale may consist of 2 or more contracts. For example, one
for the real estate and another for livestock and plant. The valuer
should peruse both contracts as often the value of livestock and
plant is overloaded for stamp duty and income taxation reasons.
The
higher price for stock and plant is compensated by a lower price for
the real estate component.
LEGAL
DESCRIPTION
The
stated area of the land sold may be wrong. Sometimes the vendor to
includes the area of crown licences such as road enclosures which
cannot be legally transferred. Therefore, the valuer should check the
legal description in the notice of transfer for the description of
such licences.
The
area of the property noted in the transfer may be inaccurate because
of old surveys or changing water boundaries.
ADJOINING
OWNERS
The
relevance of adjoining owner sales in rural localities is less
important compared to such sales in urban areas. The sale to the
owner of a property "just up the road" is effectively, the
same as to an adjoning owner if the road is a quiet back lane. In
some rural localities the only possible sale may be to an adjoining
owner.
In
such a situation, the adjoining owner sale is not "out of line"
and is evidence of market value. This was stated in Goobang
Shire Objections (The Valuer, Vol 21, p57) where
Else-Mitchell J said at pp61/62:
I
question the propriety of excluding from consideration entirely a
sale made to a neighbouring owner, at any rate in the absence of
evidence showing that such an owner bought under some sort of strong
economic pressure. Recent discussions of some of the problems of
valuing rural lands in well settled areas have suggested that in the
last twenty-five years 'the two great trends in agriculture which
have emerged either singly or in combination have been the
amalgamation of holdings and the intensification of land use' (see Mr
B M Treseder's paper given to the Pan-Pacific Congress of Valuers.
17th April, 1969, page 131). The causes for this it is not necessary
to pursue but if as Mr. Murphy contended—and as I think is the
probability--the field of purchasers for the lands of the applicants
in an unimproved state would comprise mostly local landowners already
engaged in primary production, it would seem clear that there would
be a potential demand of some strength by many such landowners for an
area of 200 to 500 acres as an addition to their existing holdings.
This
fact indeed was clearly established as to not dissimilar land in the
Weddin Shire which when suhdivided, sold readily to neighbouring
landowners in parcels of 200 to 600 acres at uniform prices fixed by
the owners, who were the trustees of two estates.
Also,
in Cattanach v Water Conservation and lrrigation
Commission, reported in ("The Valuer", Volume
17, page 273), Else-Mitchell J said (at page 278) said:
…this
district has been found particularly suitable for merino sheep
breeding an includes several well-known stud ram and merino
properties, some of which are as large as 100,000 acres in area. The
lands, generally speaking, are 'closely held', a phrase used by more
than one witness, but in between these large holdings there are
occasional parcels of land in the hands of comparatively small
landowners such as the appellant (The area of the subject land was
2239 acres). Despite the particular purpose of sheep breeding to
which lands in this district seem the best suited, the subject
property was used by the appellant to raise fat lambs. That, however,
does not detract from his right to have compensation assessed on the
basis of the best potential use of the property, and I think it is
proper to conclude that if it had been available for sale the field
of potential purchasers in the market would probably have included
one or more of lhe existing
graziers
in the district or owners of large estates close to the property."
In
Case ED 1/262, The Valuer, April, 1972 at p126:
In
some districts there is a strong demand by local landowners for
blocks of land which are less than a living area, and especially for
those with little or no buildings. Some of these landowners may own
adjoining land.
Sometimes
there are features which make the land more desirable to an adjoining
landowner than to any other potential buyer. There may, for example.
be good water on the land which is capable of watering stock running
on a greater area and which is in a position where it can be utilised
to improve the watering of the adjoining owner s land. Such a sale
may reflect special value for amalgamation with the adjoining owner's
land and it may be out of line with the market generally.
See
also Hurdis v Minister, 2 LGRA 132 at pp140-141.
LEGAL
MISDESCRIPTION
The
notice of transfer sometiimes has a misdescription of the
legal description of the property. Therefore, the valuer should check
the lot and deposited plan number.
The
willing seller willing buyer theory (Spencer's
case applies to the valuation of non urban lands when determining
market value generally, as it applies to urban lands. However, the
market analysis needs to be more rigorous and emphasizes different
components of the conveyancing system.
The
valuer can obtain sales data from transfers lodged with local
authorities or from computer printouts available from the central
valuation authority or private companies who sell such lists.
PRESENT
TITLE BASIS
The
methods of valuation for rural properties firstly assumes that the
property is fee simple in possession or unencumbered freehold.
Therefore, sales of properties subject to leases or licences (the
majority) have to be adjusted upwards to a common unencumbered value
which is a datum value against which other sales and valuations
can
be compared.
To
find the market value of a rural property subject to leases or
licences requires a discount to an equivalent unencumbered value. The
discount reflects the extra cost of occupying Crown leases and
licences and the restrictions placed on them by the Crown.
EXCLUSIVE
LICENSES
Some
crown licenses can only be occupied by the surrounding owner, for
example, internal road enclosuress and permissive occupancies with no
external access. In such cases the added value to the main part is
the value of those lands less the capitalized annual rent. It is
usually only a formality for the purchaser of the freehold to occupy
these lands. as licensee.
On
the other hand lands that have a number of potential occupiers such
as licenses on nearby stock routes or reserves will add little or no
value to the main land as there is less certainty that a new owner
will be allowed to occupy those lands.
The
market value of such lands is a fraction only of the freehold value
of the license is added the value of the main property for example,
0-10% of freehold value less the capitalized rents.
RESTRICTIONS
ON USE
The
valuer should determine the allowable land use on the
licensed
land. If the allowable use is the highest and best use,
then the starting value is freehold. If the allowable use is less
than the highest and best use then its value is a proportion of the
freehold value. The discount will depend on whether or not a
potential purchaser would want to use the land for the allowable use.
LEASEHOLDS
Unlike
licenses, Crown leases provide the owner with an interest in the land
and should be valued with the main part of the property. Most crown
leases are for a term of years and unless there are facts to the
contrary, such as a statement by the Department, it should be assumed
that the owner will be allowed to "roll over" the lease
upon the
expiration
of the current term.
Once
this assumption is accepted the only difference between leasehold and
freehold lands is the present value of future rental payments and an
allowance for any restrictive conditions of use. If the allowable use
is the highest and best use then the only
disadvantage for the owner compared to the owner of freehold land is
the payment of rent to the Crown. On the other hand, if the allowable
use is less than the highest and best use, the
freehold value will have to be discounted.
Quite
often leased and licensed lands are marginal lands to the main
property and the allowable use is the highest and best use.
CAPITALIZATION
The
value deducted from the fee simple in possession value is the
capitalized value of the rents being paid. The valuer ascertains the
annual rents from either the owner or the department and this amount
is capitalized in perpetuity (assuming that the lease will be "rolled
over") using a conservative capitalization rate. A conservative
rate is adopted because of the low returns received from rural
properties and the conservative nature of the investment.
EXAMPLE
It
has been ascertained from comparable sales that the freehold value of
a rural property is $850 000 including certain road permits and crown
leases. The valuer determines that the rents being paid for all road
permits, a Special Lease, and a long term Conditional Lease is $5 400
per annum.
A
suitable interest rate of 5% per annum is determined from either
analyzing comparable sales or the opportunity cost of investment
(long run).
CAPITALIZED
VALUE OF RENTS: 5 400 * 100/5 = 108 000
PRESENT
TITLE VALUE: 850 000 – 108 000 = 742 000
The
valuer should stress in the valuation report that the final value is
on a present title basis. For example, the final
statement in the valuation report could read as follows:
The
present title value of the subject property as at 06.10.2xxx is
$742
00.
Sales
are analyzed to a freehold value equivalent using the reverse
procedure to that shown above.
SECONDARY
SALES DATA
Specialised
rural magazines such as The Land include a large real estate sales
section. Rural advertisements are most useful to the valuer as they
are the first indicator of properties for sale so that their progress
can be tracked and the asking price shows the highest level of price
in the negotiating process.
Of
course the final contract price is the only acceptable evidence of
market value and that should be determined from a reliable primary
source such as the local authority’s sales printout.
RURAL
PROPERTY BASIC DATA SHEET
Below
is an example of a typical non urban valuation sales and subject
property summary data sheet:
PROPERTY
NAME:
.........................................................................
ADDRESS:............................................................................
...........................................................................................
..........................................................................................
OWNER:.............................................................................
LOT#:...........................
DP
#:.....................................................................
COUNTY:............................................................................
SHIRE:.................................................................................
DISTANCE
FROM NEAREST
TOWN:...........................................................
FREEHOLD:....................................................................HA
CROWN
LEASES:........................................................................HA
.....................................................................................HA
.....................................................................................HA
CROWN
LICENCES.......................................................................HA
OTHER
TENURES:.........…………………………………………………HA
%
OF TOTAL AREA USED FOR GRAZING:....................
%
OF TOTAL AREA 'UNDER CULTIVATION:....………...
%
OF TOTAL AREA ANY OTHER LAND USE:.................
THAT
USE..................
%
OF TOTAL AREA ANY OTHER LAND USE:.................
THAT
USE..................
%
OF TOTAL AREA NOT USED:.....................................
MAJOR
SOIL
TYPE...............................................................................
%
TOTAL AREA:..................
MINOR
SOIL
TYPE..................................................................................
%
TOTAL AREA:..................
MAJOR
TIMBER
SPECIES:...........................................................................
MINOR
TIMBER
SPECIES............................................................................
%
TOTAL AREA:..................
MAJOR
SHEEP TYPE............................................
DSEUNIT:.....................
NUMBER
CARRIED................................................
.DSE:...................................
MINOR
SHEEP TYPE..............................................
DSEUNIT.......................
NUMBER
CARRIED..................................................DSE:.................
MAJOR
CATTLE TYPE...............................................
DSEUNIT:......................
NUMBER
CARRIED....................................................
DSE:.............................
MINOR
CATTLE TYPE................................................
DSEUNI........................
NUMBER
CARRIED....................................................
DSE:.............................
OTHER
STOCK TYPE.................................................
DSEUNIT:......................
NUMBER
CARRIED.....................................................
DSE:.............................
OTHER
STOCK TYPE..................................................
DSEUNIT:.....................
NUMBER
CARRIED.....................................................
DSE:.............................
TOTAL
DSE...................
COMPARABLE
SALES CLEARED HA X/DSE
ANY
OTHER RELEVANT DATA:
1......................................................................................
2.......................................................................................
3.......................................................................................
4.......................................................................................
5.......................................................................................
6.......................................................................................
8