Home > PODCAST: The Family Matters Show

E13 – Property Valuation

On the Show Today You’ll Learn

Please be aware that the sound quality of this month’s recording is not up to our usual standard.  Due to Covid-19 we have been experimenting with different methods of remote recording and the month technology failed us.  Our sincere apologies.

 

Property settlement is one of the greatest sources of conflict in the separation process. Bryant McKinnon Lawyers always advise that it’s best to figure out what you are actually worth before you start arguing over who gets what.  The best way to assess the value of your assets is to employ a professional valuer.

In this episode Benjamin Bryant speaks with Ken Potter from Herron Todd White about valuing real estate and to Glenn Aylward from Aylward Auctioneering about valuing household contents.

Topics covered include:

  • The difference between a real estate agent and a professional valuer.
  • The meaning of “value” and the process for deriving a valuation.
  • Impartiality of professional valuers.
  • Retrospective valuations.
  • Valuing specialist items like artwork.
  • The impact of Covid-19 on valuations.

A big thank you to Ken Potter and Glenn Aylward for braving new technology and being willing to help out listeners to better understand the professional valuation process.

Links & Resources Mentioned in This Episode

Auctioneers & Valuers Association of Australia

Subscribe to The Family Matters Show

iTunesSpotifyStitcherTuneIn

Full Episode Transcript

Benjamin Bryant: Welcome to Episode 13 of The Family Matters Show and our second program recorded in this period of social isolation. Today, we are recording from the Bryant McKinnon offices, but I’m sitting in one room, one of my guests is sitting in the office beside me, and my other guest is sitting at home where I will be speaking with him on the phone. So we are all safely separated from each other.

Benjamin Bryant: I’m your host, Benjamin Bryant, an accredited family law specialist with Bryant McKinnon Lawyers. My socially isolated guests are here today to help us explore the subject of valuations. When it comes to separation and divorce, one of the biggest sources of conflict is property settlement. Our advice in this area is always to figure out how much everything is worth before you get into the whole “who gets what” conflict. The best way to figure out what your assets are worth is to have them valued by a professional valuer. It takes all the emotion out of the exercise and allows you to focus on coming up with an equitable split.

Benjamin Bryant: So today, sitting in their separate rooms, we have with us two professional valuers to help us better understand the valuation process. Ken Potter from Herron Todd White Property Valuers will talk to us about valuing the family home and other real estate. Glen Aylward from Aylward Auctioneers will explain the process about valuing your household contents.

Benjamin Bryant: So let’s get started by welcoming Ken Potter, who is squirrelled away in the office next door. He’s a very experienced property valuer working with homes, commercial real estate and agribusinesses. We often turn to Ken to help us out with property valuations for our clients. Welcome to the show, Ken.

Ken Potter: Thank you, Ben. It’s good to be here.

Benjamin Bryant: Excellent. Ken, as you know, the family home is usually the biggest single asset involved in a separation. So getting an accurate valuation is critical to getting an equitable settlement. So let’s see if we can’t demystify the whole valuation process.

Benjamin Bryant: First of all, lots of people ask us why they can’t just get the house valued by a real estate agent. So let’s start by asking, what makes you different from a real estate agent?

Ken Potter: Yes Ben. Valuation is really a formal process with a legal standing. And it’s undertaken by an expert witness, usually a valuer, as accepted by the court. Whereas a real estate agent can provide an appraisal, and that appraisal may well be the same as  the formal valuation, but it’s not accepted by the court.

Benjamin Bryant: And when you are valuing a property, what do you take into account?

Ken Potter: For residential property, we look at location, land, improvements, market conditions and sales evidence. So with regards to location, its surrounding development, perhaps proximity to services. For land, its physical aspects associated with slope, aspect, size of the land and views. For improvements, we look at the age, construction type, size, condition and accommodation. For market conditions, we have regard to the relevant asset class and have a look at what’s happening in the marketplace. And for sales evidence, we undertake analysis of the sales and make comparison with land and improvements.

Benjamin Bryant: So, Ken, with looking at the market evidence, that’s obviously based on what’s happened previously. Do you take into account things that might happen into the future?

Ken Potter:  The valuation should consider, it’s based on historical evidence of the sales, but it also must factor in what’s happening right at the moment. So, yes, we do take into account the most relevant changes in the market conditions and make adjustments to those sales to reflect what’s happening at the date of valuation.

Benjamin Bryant: And Ken one thing that I spend a lot of time talking with clients about is: what does value actually mean?  Is it the market value? A lot of people talk about insurance value or replacement value. And of course, people talk about the land valuation that’s sent through from Valuations NSW. What does value actually mean?

Ken Potter: Thank you, Ben. Yeah. There are different forms of value. It really comes down to the instruction from our client. So in terms of market value, generally, it complies with a definition and the definition of market value as held by the courts, is the estimate of value an asset or a liability on a given date between willing buyer and willing seller in an arm’s length transaction, where each acted with knowledge and where the property is marketed properly. So that will normally involve the valuation of land and improvements, and that will relate directly to sales and what’s happening in the marketplace.

Ken Potter: With insurance value, unlike market value, where the value of the improvements was usually the depreciated value of the improvements within the total value, insurable value relates to replacement of the improvements. And quite often we receive queries about the quantum involved in our insurance valuations. So not only does the insurance valuation of the improvements relate to the replacement cost of those improvements based on current building costs, but it will also include Council fees, demolition fees, it will make an allowance for escalation in costs during the insurance period. And so quite often that insurance value will seem high in relation to just constructing a dwelling back on that parcel of land.

Ken Potter: And with land value, in terms of how we look at land value in terms of market value, it’s a proportion of the total value and it’s determined by direct comparison with evidence of land sales at the time. The Valuer General assesses land values for writing and taxing purposes, slightly different basis to what we do because they value under the Valuation Land Act and that has slightly different connotations for the value. That’s usually retrospective value, but it is based on direct comparison as well. Stripping back all the improvements.

Benjamin Bryant: And Ken you’ll appreciate in my job, I’m talking about market value, essentially or value of the real property for the purposes of family law, property settlement. And so what you’re saying is reminding me that there are other reasons to value a property.

Benjamin Bryant: A lot of people, when they come to see me, they might have a valuation done by a real property valuer, that was done for the bank for refinancing purposes. Do you use the same process, whether you’re valuing for the bank for a refinance or whether you’re valuing for parties and a family law property settlement?

Ken Potter: That’s a really common question, Ben. I’ve lost count the amount of times that clients have contacted me and said, “Oh but this is only a mortgage security valuation. So it’s really quite low, isn’t it?” And really, it shouldn’t be. The process is the same for all types of valuations. So it’s analysis of data, based on sales market evidence and applying that data to the subject property.

Ken Potter: But there are different forms of valuations and different report formats. And within those different report formats, there’s different requirements for mortgage security valuations, such as replacement cost, which aren’t required in family law matters. But generally, the process of valuation, of putting the nuts and bolts together, should be the same for all types of valuations.

Benjamin Bryant: And another common question that, as a family law practitioner, I get is in relation to the concerns about real property value as being impartial. Are you bound to be impartial? And what if someone is at the property giving you information when the other person is not there? What’s your thoughts on impartiality?

Ken Potter:  All valuers understand their obligations to the clients and to the court to be impartial. What you’re saying is an everyday occurrence when you’re doing a family law matter. However, it’s really a matter of professional standing and moral standing that you conduct yourself in an impartial manner It’s not uncommon for one party to be at the property during inspection and it’s not uncommon for them to present certain items.  But in more recent times, valuers are not too engaged in detailed conversation with anyone on site. And we would direct them to refer any faults that the property might have back through their legal representatives so that they can be formally addressed and if need be, adjustments made. Many valuers have personally been through the distress associated with separation and understand the dynamics involved. So I would hope that, yes, valuation is independent.

Ken Potter: And also what you mentioned just there with legal representatives, of course, if you had legal representatives and, in most cases, when the matter gets to you, then it’s a joint valuation.

Benjamin Bryant:  A common question that just occurred to me Ken, that I have to get out for the listeners is: Does it matter if they mow the lawn or not?

Ken Potter: Not really. Valuers look beyond those small issues. So that’s just a presentation issue. So when we look at the property, we assume that it would be well presented, it’d be well marketed and it will be sold under normal conditions. So if you haven’t mowed the lawn or you haven’t cleaned up the bathroom, that’s really irrelevant to the value. We look beyond that. After looking through houses for 30 years, you don’t really see or notice those sorts of things or take account of them. So it’s more the issues associated with lack of repairs and maintenance or those sorts of issues that you would make a note of and perhaps make allowance for in your valuation.

Benjamin Bryant: Well, that’s great, because that’s what I’ve been saying to people for years. So it’s good to hear it from the horse’s mouth. And Ken, some people separate, they’re proactive, they get their ducks in a row, move on and get a house valued and do a final property settlement. That’s not always the case for everyone and sometimes separation can happen over a few years ago, and then it might be beneficial to get a valuation not of the house in today’s market, but perhaps two years ago or three years ago at separation. So do you do historical valuations and how do you go about that?

Ken Potter: Yes, we receive many instructions to do retrospective valuations, not so much in family law, but very, very common in taxation. Yes, we can do retrospective valuations. So that means looking back in time at the marketplace and analysing the sales at that time and applying those to the property. Now, if there’s been improvements undertaken between the retrospective date and the current date of inspection, (because we do inspect the property as at the current date of instruction, but relate the value back to a retrospective date) then they need to be documented and presented to us so that we can consider those.

Benjamin Bryant: All right, just to throw a spanner in the works, what if you no longer own the property?

Ken Potter: That’s a very good question. And it comes down to our instruction. If we receive mutual instruction from the lawyers to undertake it on the basis of assuming this condition, then we would still reply a retrospective, subject to our instruction.

Benjamin Bryant:  One of your common disclaimers, as a real property valuer, is that you’re not a structural engineer and that you assume the property is free from any major defect. What if there are major defects though? How do you expect to be advised of those and how do you take them into account?

Ken Potter:  It occurs occasionally whereby, either in our initial instruction, defect or an issue may be identified by a party. Then it really comes down to the inspection process. And if no defect has been identified up front, the valuer may identify a structural issue during inspection. Normally what happens is the valuer will then seek further instruction back through the mutually appointed lawyers to engage a qualified engineer, perhaps, or a builder to advise on any issue that turned up either prior to inspection or during inspection, or was noticed prior or during inspection. And then the report is furnished to the valuer and the valuer considers the issues within the professional reports and the costings associated with rectification and remediation and may make allowance for those in his valuation and therefore consider the impact on value.

Benjamin Bryant: And finally Ken, because the world has changed so much in the last few months, has Covid-19 had an impact on how you value real estate?

Ken Potter: It’s very different for all different asset classes Ben. Covid-19 is a difficult time for the property market and difficult time for the valuer to reflect on the potential impact on the property market. With commercial property it’s a little bit more straight forward. Given that commercial property is usually purchased on income and yields, then if the tenant and landlord have entered into negotiations for a rent reduction, the valuers tend, at the moment, to be making a below the line adjustment for loss of rent or potential loss of rent for periods associated with what’s happening in the market between three to six months. So that’s a below the line adjustment to the capitalised value, because we don’t have any evidence of the impact on yields at the moment for commercial property. And that will become evident as time goes on. For residential property, most property real estate agents are reporting that they’re still receiving good inquiry and still conducting sales. So that’s a positive. There seems to be a tightening of listing, so I think the market place is a little bit reticent to go to the market. And so there may be a shortage of listings in the future. But at the moment, residential properties still seem to be to be selling, particularly the owner occupation market.

Benjamin Bryant: So I guess we just have to stay tuned. That’s great information. Thank you so much, Ken.

Ken Potter: Thank you, Ben. Happy to help.

Benjamin Bryant: Now, for some people, getting a value on a family home is going to be enough. But many families have a lot of money tied up in household content, and that could lead to disputes in the settlement process. This is particularly true for families with high value items such as jewellery, artworks or even cakes.

Benjamin Bryant: Our second guest who is joining us by telephone to talk to you about valuing these types of items. Glenn Aylward from Aylward Auctioneers has been valuing and auctioning “stuff” for a long time. So there’s no better expert to talk about valuing home contents. Welcome to the show, Glenn.

Glen Aylward: Thank you Ben.  I’m happy to participate.

Benjamin Bryant: It’s great to have you on the show. So the first question we get asked when recommending a valuer is what makes their opinion on the value any better than mine. So to start, can you explain your qualifications and training?

Glenn Aylward: Well, I mean, that one’s easy. The answer is, you know, trust me, I’m an auctioneer. No, I’m only joking.

Glenn Aylward: No, look, the only thing that would make our valuers opinion different to the person we’re doing it for or one of the other parties is the fact that in my particular case, I’ve been valuing plant and equipment etc for over 40 years. And it’s based on pure experience as an auctioneer and a valuer of being able to achieve figures for things, you know. The Australian Auctioneers and Valuers is who we are licensed through. And to get that licence, we have to go through a process of sending off valuation work to a board of valuers, let them look over it. Have a look and see whether they think we know what we’re doing.

Benjamin Bryant: So essentially, you’ve sold a lot of items over a lot of years and a lot of market conditions.

Glenn Aylward: Yeah, yeah. I mean, we’ve been two kilometres underground, gold mines, sawmills, we’ve been done hospitals, mental health departments, household furniture, jewellery. I mean, there’s nothing we really haven’t done over the years.

Benjamin Bryant: And when it comes to valuing household items, particularly in the context of family law, do you look at market value, the insured value or the replacement value

Glenn Aylward:  One thing that certainly isn’t is insurance value, which is full on replacement value. Now back when we first started, it was always based on auction value, basically, which means if I was to put a lot number on that particular piece of furniture right here, right now, what are we going to get for it.  Since then… That is still the case with some law firms or some cases in the family court. But most of the time these days, now, they sort of moved towards market value, which is obviously a willing buyer and a willing seller. The difference between that and auction value is you give them time to promote it and advertise it and find a buyer, as opposed to a forced sale?

Benjamin Bryant:  Let’s say you’re in a family law situation and people have asked you to come to their house to value the contents of the home. I’m interested. Do you go through every item and allocate a value to each item and then tally it up at the end? Or is it more going in there and saying, you know, some things might have valued as a lot? How do you determine what to value?

Glenn Aylward: Yeah, well, it does vary slightly, but mainly it is done really on a common sense point of view. I mean, you know, I could stand there and I could value a cabinet, for example, full of cut glass or crystal glasses, and I could list each individual scotch glass, wine glass, champagne glass …and time’s money. And then they could end up with quite a sizeable valuation fee. Or I could say that the cabinet of glassware is worth one hundred and twenty dollars as opposed to, ten glasses worth and ten dollars each.

Glenn Aylward: So, you know, it’s a bit of common sense comes into it but you end up with the same result though.

Benjamin Bryant:  Sometimes people want to have conflict and spent a lot of time on content. When you speak with people and you try and give them that advice that the contents probably isn’t worth much or just divide by agreement, they say, “But we’re the exception.” I know that that artwork was purchased for fifteen hundred dollars two years ago. I know that those crystal drink ware came from his great grandfather. I know it had some value.  Is there a specialised knowledge with those things? Is it about choosing the right valuer? How do you approach it?

Glenn Aylward:  You’re spot on in that. That does happen. And when it comes to something like some artwork, I turn the thing over and have a look and see whether there’s any authenticity labels or stickers on the back of it. Have a look and see whether it’s on board. If it’s on board, the chances are that it’s not original. Whether it’s on canvas. Whether it’s actually oil or what they call a facsimile. And so therefore, you can quickly go and do a quick Google on it and check it out. But unless it was a Rembrandt or something, we would refer it off to someone like Lawson’s of Sydney and or suggest that the client does that.

Glenn Aylward: But getting back to the first case, you said when people usually say to us, “Look, I know that was purchased for fifteen hundred dollars and it’s got to be worth money.” That usually comes from the person who’s not in the house.

Benjamin Bryant: Or who’s not going to retain it.

Glenn Aylward:  The person who’s going to retain it will tell you, “We got that at the markets for $150.” That’s no disrespect to either party. There’s no gender on that. Just basically whoever is going to retain usually thinks it’s not worth a real lot, who’s not going to retain usually thinks it’s worth a considerable amount more. I can tell you that the person retaining it 90% of the time is closer than the person who is not retaining it.

Benjamin Bryant: And Glenn, I know it’s early days, but how has the Covid-19 pandemic had in impact on how you value assets at the moment?

Glenn Aylward: Well, it certainly hasn’t devalued anything. That is one thing for sure.

Glenn Aylward:  On an auction point of view , it’s had a major effect in the fact that we can’t have live auctions So we’re very fortunate that we did team up with Lloyds who are 100 percent online auction house, and it hasn’t affected us at all and it hasn’t affected our valuations other than access.

Benjamin Bryant:  And Glen finally, before I let you go, I wanted to hear some anecdotes from you, because I’ve done a lot of property settlements and people have argued over pot plants, vegetable spiralisers. Just this morning, I was talking about grandma’s cutlery set. Monday, I was talking about handmade mosaics and the value of those. Surely you have some great stories to tell us.

Glenn Aylward:  I find it hard to discuss some of the stranger things that have happened without really insulting somebody. One that really comes to mind is we dealt with a company down south in the mid north coast. There was a large factory involved. I think it was some sort of metal factory. And there were two beautiful homes, one on the coast and one inland, etc, etc.  There was quite a few million dollars involved in the real property and all the equipment. And there ended up being, you know, an arm wrestle over a microwave oven that they dragged us in on where we’d valued it at forty dollars and they believed it was worth seventy dollars. You know, that to me, by the time the tooing and froing goes back between the couple of lawyers to sort it out’s probably cost three hundred dollars for someone to get the upper hand on that microwave oven, which only was an extra ten or fifteen dollars. So there’s nothing pleasant about this part of our job. We do it as something that has to be done. There’s no fun at all.

Benjamin Bryant: That’s right. And as you appreciate it, as a lawyer, we have to do that as well. I tell people on a daily basis, Glenn, about, just having a common sense approach that you’ve spoken about today. Sometimes the cost of the valuation can be more than the gap that they’re arguing over. And more often than not, the conflict isn’t actually about the microwave or about the item.

Glenn Aylward: Yeah, it’s a conflict of egos and it’s a shame.

Benjamin Bryant: It’s necessary. And thank you so much, Glen for being here today and sharing your experience with us.

Glenn Aylward: My pleasure. Happy to assist. And good luck with all those people out there when they’re going through this.

Benjamin Bryant: Perfect. Thanks Glen.

Benjamin Bryant: Valuations can be such a dry topic. So a big thank you to Ken Potter and Glen Aylward for an entertaining look at the whole valuation process. I hope this has convinced any listeners out there about to embark on a property settlement, that the best place to start is with a professional property valuation.

Benjamin Bryant: Next month, my partner in crime, Heather McKinnon, will be back and we’ll be talking about divorce and the blended family. This is a topic we were going to cover a couple of months ago before we were rudely interrupted by the Covid-19 outbreak. The number of blended and step families just keeps going up. While it’s great to see separated couples re-partnering, in our experience, it can raise unexpected disputes. So Heather and I are going to look and talk about when to expect concerns to arise, how best to handle them, and most importantly, what’s best for your children.

Benjamin Bryant: If you have a blended family situation and have questions that you would like Heather and I to answer, please send them via Facebook Messenger or e-mail us on familymatters@bryantmckinnon.com.au.  Before we go, I want to mention that a full transcript of today’s show and links to any resources mentioned will be available in the show notes on our website: bryantmckinnon.com.au.

Benjamin Bryant: Thank you for listening. And stay safe.

 

How To Contact Us

Head Office

35 Gordon Street,
Coffs Harbour NSW 2450

Bellingen Satellite Office

5/87 Hyde Street
Bellingen, NSW 2454

PHONE 02 6651 8440

Follow Us