Understanding land valuation
An individual property can be viewed from different perspectives such as home owner, investment or development and therefore the value of that property will be determined accordingly from that perspective. Knowing how and who values your property will assist you in making an informed decision about the buying, selling and holding process.
There are three main types of valuations:
- Valuer-General / Council Valuations
- Certified Valuers / Bank Valuations
- Real Estate Agent Appraisals / Market Value
Valuer General/ Council Valuations
Dependent upon which state or territory you live in, it is usually the role of the Valuer-General to oversee and provide updated land valuations for all properties in a local government area and to maintain complete, accurate and as current as possible valuation rolls for that State or Territory. Valuations are conducted annually in SA, Queensland and ACT, every two years for Victoria, every three years for NSW, WA and NT, every six years in Tasmania with a third of councils every two years.
The Valuer-General is responsible for:
- the provision of fair, accurate and consistent land values for rating and taxing purposes
- the determination of compensation following the compulsory acquisition of land
- providing leadership to the valuation industry and profession
- providing statutory valuations as required under the Land Act for that state or territory
The results of these valuations are provided to:
- the Office of State Revenue annually, which manages and determines a landowner's land tax liability. Your principal place of residence is generally exempt from land tax.
- councils and other authorities such as water boards and emergency services as a basis for the levying of rates and taxes.
- departments to determine state land lease rent
- landowners via their notice of valuation, which is issued when their local government area is revalued.
The Register of Land Values contains the following information:
- the ownership of the land
- the occupation of the land
- the value of the land
- reference to the title of the land
- the location or description of the land
- the area of the land, and
- any other information as required by Valuation of Land Act for that particular state or territory.
Land values and council rating
Councils use these land values to assist in the calculation of rates for local residents in one of three ways.
- A combination of the land value of the property and a fixed amount per property.
- Entirely on the land value of the property.
- Entirely on the land value but subject to a minimum amount.
Fluctuations in land values don't necessarily lead to similar changes in rates. Rates depend on each councils rating structure and the limits to increases set by the various state and territory governments. The land value does not generally reflect the full sale price that could be obtained for the property.
If you want to find out how your rates are calculated, contact your council.
Land valuation process
While states and territories differ in their approach and methodology, the general basis is that values are calculated using either the “unimproved land value” or the more common “site value” method. For the purpose of this article, I’ll use the NSW and Queensland methodologies for the explanation of each:
NSW
- Values refer to land value only, which does not include the value of your home or other improvements.
- Most land in NSW is valued using mass valuation, where properties are placed together and valued in groups called components. The properties in each component are similar or are likely to change in value in a similar way.
- Within each component, at least one representative property is valued individually each year to measure how much the value has changed from the previous year. The change in value is then applied to all properties within the component to determine their new value.
- Before undertaking valuations, valuers will inspect and analyse a large number of sales in a locality to gain in-depth understanding of what is happening in the real estate market. This information and the valuer’s expertise are then used to value the representative property.
- Where mass valuation is not appropriate, valuers will individually value the property.
- The most direct evidence for assessing land value is to compare the property being valued with the sale price of comparable vacant land sold around the time of the valuation date.
- During the valuation process, the valuer will examine the breadth of the real estate market including both vacant land and improved property sales. Valuers make allowance for the added value of any buildings or other structures on the land.
- Unsuitable sales, for example those between related parties, are not used to determine land values.
- When comparing property sales to the land being valued, the valuer may take a number of factors into consideration, including:
- The location of the land, size and shape
- Soil type and land surface, such as slope
- Town planning controls and constraints on use, such as heritage restrictions
- Nearby development and amenities, such as parks, views, public transport and busy roads.
- Valuations are based on certain assumptions, including the property being vacant. The value of a home or other structures and improvements is not included. However, land improvements remain part of the land value, for example clearing, draining and filling of land.
Strata site land values
- The Valuer-General is responsible for determining the land value for the whole site of a strata scheme. The valuation will take into consideration the most valuable possible use for the whole site. This may exceed the current level of development on the site.
- The land value for individual strata units for council rating and land tax purposes is calculated using the land value for the whole site of the strata scheme and apportioned based on the unit entitlement listed in the strata plan.
- The Valuer General issues the secretary of the strata plan or the owners’ corporation with a Notice of Valuation showing the land value for the whole site of a strata scheme that will be used for rating purposes.
Queensland
From May 3 2011, the 58 rateable municipalities in Queensland have used the new site value methodology to value non-rural land and the unimproved value methodology to value rural land.
Most landowners have seen very little difference in their new valuation as a result of the introduction of site value. Where there have been substantial site works made to land, landowners may see an increase in the value of the land. Approximately 95% of residential land in Queensland has not been significantly affected by the change in valuation methodology. However, the valuation of some residential land may have increased, such as land with water frontage. Other types of land also changed in value to reflect the difference in value between the land in its natural state (unimproved value) and its current state (site value).
For example, industrial estates that have been heavily filled, retained or levelled have seen the value of these improvements included in the land’s value.
The new site value methodology has resulted in some properties, mainly commercial properties with significant leasing arrangements, having a reduction in their statutory land valuation as a result of the intangible elements no longer being considered in their valuation.
Swarnie Condon is an author of Journeys Along the Property Path: 12 real life stories of 12 property investors, published by Inspirational People in Property.