Dare v Chief Executive, Department of Natural Resources [1997] QLC 194

LAND COURT BRISBANE 12 December 1997 Re: Appeal against Annual Valuation Valuation of Land Act 1944 Valuation Roll No: 53339 Local Government: Gold Coast-Albert (AV97-173). Richard T and Wendy L Dare v. Chief Executive, Department of Natural Resources (Hearing at Coolangatta) D E C I S I O N Background: This matter relates to a property located at 50 Coorabin Court, Tallebudgera, Gold Coast, and described as Lot 118 on RP 153276. The parcel has an area of 7,788 square metres and is zoned as "Park Residential" under the former Albert Shire Council Town Planning Scheme of February 1995, and effective at the date of valuation of 1 October 1996. The key issues are the comparison of sales and the added value of improvements. The subject is located on the western side of Coorabin Court, backing onto Tallebudgera Creek, and is approximately 6.5 kms west of the Currumbin Waters Post Office. It is surrounded by "Park Residential" lots each of area ranging from 4,000 square metres to 8,000 square metres, mostly with single unit dwellings. The area is within 5 kms of the Tallebudgera State Primary School, 7.5 kms of the Elanora State High School, and 11 kms from "The Pines" community shopping centre at Currumbin Waters. There are three golf courses within 4 kms of the subject. Coorabin Court is a bitumen sealed two-lane carriageway with concrete kerbing and channelling, providing easy access to the subject. The subject is slightly irregular in shape, is mostly moderately sloping from south-east to north-west, the slope increasing more westerly nearer to the creek. Due to its lower elevation part of the subject near the creek may flood, although flood waters are not recorded as entering the existing concrete slab dwelling which was apparently constructed during the 1970s. Services available include reticulated water, power and telephone. The subject has a septic system and has been selectively cleared providing local rural views. A bus service is within 1.5 kms of the subject. There is also a metal shed and in-ground swimming pool upon the subject. Its highest and best use is as a rural homesite. [1997] QLC 194 -- 1 of 9 -- 2 On 10 March 1997, the Chief Executive issued a valuation of the subject at $165,000. Following an objection the Chief Executive disallowed the amount claimed, and on 23 June 1997, confirmed the valuation at $165,000. The appellants then appealed to this Court claiming the valuation should more properly be $114,000. As the original valuer who undertook the valuation was no longer available, Mr Cowley re-assessed the subject, and on 18 November 1997, advised the Court that he would be presenting evidence to support a valuation of $150,000. Mr RT Dare appeared and gave evidence for the appellants. Mr PD Grennan appeared for the respondent, calling evidence from Mr MW Cowley, the Departmental Registered Valuer now responsible for determining the valuation. Evidence: Mr Dare advised that he had purchased the subject as an improved site about 4½ years ago for $215,000. At that time the unimproved capital value (UCV) was $114,000. Since then, he has constructed further improvements in respect of an in-ground swimming pool ($15,000) and fencing for horses ($2,500). As a result of his enquiries from local real estate agents, and his personal assessment of the property market, he believes a reasonable market value of the subject is still $215,000. As a method of checking the reliability of the Chief Executive's valuation, he has deducted the former unimproved value of $114,000, concluding that the depreciated value of improvements, including his further improvements, would only amount to $101,000. Mr Dare is a professional accountant and his knowledge of asset depreciation rates, and his estimates of building costs for replacement, suggest to him that he could not replace the improvements for that figure. By his calculations, therefore, he concludes that an unimproved value even at $114,000 is too high in the current market. In seeking to further support his conclusion, Mr Dare sought written professional advice from a real estate agent in respect of the likely market appraisal of the improved property (between $215,000 and $220,000) and also from Mr JS Eden, a registered valuer in the employ of HTW Valuers of Gold Coast (an unimproved value of $140,000). Both statements were supplied to the Court (Exhibits 3 and 2), however neither the real estate agent nor Mr Eden were invited to the Court in order to defend their assessments. Mr Dare acknowledged that he was not aware of the advisability to do so, and had assumed that the reports would stand on their own merits. In considering the value of improvements, Mr Dare argues that, applying a reasonable adjusted depreciation value, would result in a value of $92,000 for the improvements, and, if deducted from the expected range of likely market values of the property, would provide an unimproved value for the subject at between $123,000 and $128,000. On balance he believes -- 2 of 9 -- 3 an unimproved value of $114,000 in the current static, and perhaps lately declining market, is more than reasonable. He admits that the likely market appraisal by the real estate agent was not a valuation by an experienced valuer, and could not really be adopted as an estimate of the market value of the property. However, to support his case, Mr Dare claims that his neighbour on Lot 117 purchased that property in 1995 for $215,000, a claim not rejected by the respondent. However, in arriving at his estimate of the unimproved value of the subject, Mr Dare acknowledges that he does not fully understand the difference between "replacement cost", and the principle of "added value". His personal expertise is in accountancy, and he is more familiar with the concept of the depreciation of assets for taxation and business reasons. He concedes that for taxation purposes, a depreciation rate is often written back on realisation of the asset by sale, thus reducing the depreciation previously claimed for taxation purposes. In the end Mr Dare claims that depreciated value is often more closely related to replacement cost. He has applied a similar approach in his determination of the improvements which is then to be deducted from the estimated market price in order to establish his estimate of the unimproved value of the subject. In respect of the history of the dwelling, it was agreed that it was probably constructed in the mid-1970s, possibly prior to the plan of survey of the subject in 1976. The then easement access provided for the subject appears to confirm that the dwelling preceded the actual development and survey of the western end of Karragata Court. The location of Easement A generally coincides with the future location of the Karragata Court extension. Council records have no details of any flooding of the subject, or construction of the dwelling, however it is felt that the current location of the dwelling is above the level of the 1974 floods. In support of his valuation Mr Eden provided a comparison of eight sales of vacant rural residential sites in the Tallebudgera Valley as follows: Sale Date Price Area Comparison with subject (1) 58 Gibsonville St August 1997 $125,000 4,199m2 Smaller (2) 42 Gibsonville St March 1997 $146,000 8,297m2 Similar (3) 34 Gibsonville St June 1997 $156,000 9,297m2 Larger (4) Lot 16 Petsch Creek Rd January 1997 $165,000 3 ha Larger (5) 13 Northbow Court September 1996 $ 90,000 5,009m2 Inferior (6) 17 Northbow Court July 1996 $ 98,000 5,209m2 Inferior (7) 552 Trees Road June 1997 $160,000 5.415ha Larger (8) 561 Trees Road February 1997 $165,000 4.04 ha Larger -- 3 of 9 -- 4 Unfortunately as Mr Eden was not able to explain his logic in his determination of his valuation, the Court was unable to fully understand the meaning of his comparisons of several sales with the subject. Only in respect of his Sales 2, 5 and 6 did Mr Eden clearly identify whether he saw the sale as inferior, similar or superior to the subject. Comments about size of the sales provided no direct indication of his perceived relationship with the respective values. Further in respect of Sales 5, 6, 7 and 8, it was noted that those sales did not front a creek, and were therefore of little weight when comparing the subject, which has creek frontage. It was also noted that his Sales 1, 2, 3, 4, 7 and 8 all occurred after the date of valuation of 1 October 1996. Further, in his valuation report Mr Eden has assessed the unimproved value of the subject at $140,000, presumably as at his date of the valuation of 5 November 1997. It was agreed by the parties that generally indications suggest that the market may have even declined between 1 October 1996 and 5 November 1997. On that basis it is possible that Mr Eden may have included a higher figure than $140,000, had he undertaken his valuation at a time comparable to the date of the official valuation of 1 October 1996. His determination would then have been even closer to the figure of $150,000 now led by the Chief Executive. In support of his valuations Mr Cowley provided the following sales of vacant land: •Sale 1 - (18-24 Gibsonville Street - Lot 15 on RP 894384) This is a 9,711 square metre rural site, with electricity and telephone services available. There is easy access to Gibsonville Street which is bitumen sealed with a concrete culvert over an earth drain. The sale borders Tallebudgera Creek at its rear, is of relatively low elevation, and falls gently towards the Creek. The sale has superior topography, a larger area, but lacks town water. It has a similar location to other amenities, and a similar aspect towards the creek. Overall the sale is seen as similar to the subject. The sale sold in September 1996 for $165,000, which after allowing for improvements was analysed at $162,000, and applied at $150,000. •Sale 2 - (50-56 Gibsonville Street - Lot 19 on RP 894385) This is a 5,680 square metre rural site, with electricity and telephone available. There is easy access to Gibsonville Street which is bitumen sealed with a concrete culvert over an earth drain. The sale borders Tallebudgera Creek at its rear, but is of relatively lower elevation, and falls gently towards the creek. The sale has superior topography, a smaller area, and also has no town water. Most amenities are within a similar distance, and a similar aspect towards the creek. Overall the sale is seen as inferior to the subject. The sale sold in June 1996 for $135,000, which was analysed at $132,500, and applied at $120,000. -- 4 of 9 -- 5 Decision: In the matter of the method of valuation adopted, I note that Mr Eden and Mr Cowley have both adopted a comparison of sales of vacant sites within the area. Mr Dare has sought to compare the improved value of the property and then to deduct the depreciated assessment of the value of improvements. Mr Eden and Mr Cowley have deduced unimproved values varying from $150,000 (Mr Cowley) to $140,000 (Mr Eden). If I consider the difference in the time of the valuations of 1 October 1996 (Mr Cowley) and 5 November 1997 (Mr Eden), and allow for some slight downward variation in the market for sales of rural residential sites in the area, I believe the two valuers have little to separate their conclusions. In the absence of Mr Eden's personal evidence I will adopt Mr Cowley's determination. I turn then to the estimate by Mr Dare and note that he has assumed a depreciation rate, and a likely market value for the improved property. I note also that he has some difficulty in reconciling the depreciated value of the improvements, particular in view of the additional $17,500 he has spent on the subject since he acquired the property. In this regard however I note that it has been well-established in many jurisdictions that the value which needs to be determined in this approach to the valuation, often called "the summation method", is really the added value of the improvements, and not the replacement value of the improvements. In this regard I note the findings in O'Brien Nominees Pty Ltd v. The Valuer-General (1979) LAC 6 QLCR 280, where the Land Appeal Court found at page 284: "The basic properties have sold at prices considerably below the value of the improvements assessed on the traditional method of replacement cost less accrued depreciation. In such circumstances it is unrealistic to conclude that land, the commodity basic to the enterprise, has a minus or nominal value. It is logical to assume that in times of adversity and depression, when purchasers pay less for properties as a going concern, that the lesser price attaches not only to the land component but also to the improvements. The question facing valuers in analysing improved sales in these circumstances is what value is fairly to be attributed to the improvements. It appears to us that the only tenable approach is to abandon the traditional method of replacement cost as at the sale date less the depreciation and to adopt 'an added value concept'." The difficulty for Mr Dare in this matter is to determine the added value of the improvements. In seeking support for his approach, I note that the "summation or cost method" of valuing the land is used for valuing house property, where any comparison of other vacant -- 5 of 9 -- 6 sales are not available. (See "Land Valuation and Compensation in Australia" by R.O. Rost and H.G. Collins, 3rd Edition, Reprint 1996, Page 106). Precedent for use of the "summation method" is found in Seatainer Terminals Ltd v. The Valuer-General (NSW) (1974) 29 LGRA 6, and also in Marcus Clarke & Co Ltd v. Commissioner for Railways (1949) 29 LVR 98. In using the "summation method" as a method of checking the reliability of the Chief Executive's valuation, I note that precedent may be found in seeking an alternative approach to the valuation in Minister of State for the Navy v. Rae (1945) 70 CLR 339, where Dixon J. said at page 344: "In reaching a conclusion as to compensation for the taking of a piece of property such as that now in question, it is necessary, or at all events wise, to pursue as many means of estimation as are open, to compare them, and then, as an exercise of judgment, to fix what, upon considerations this process suggests, appears to be a fair compensation. " However, in that matter, it was a very complex assessment for compensation purposes in respect of the requisition of a ship during wartime. As such it was decided to try as many methods as possible to determine the appropriate compensation. In the current matter the use of alternative approaches with their inherent difficulties, would appear to be unnecessary. Further in considering Mr Dare's "summation approach" I note that he has attempted to rely on the market appraisal supplied by the real estate agent. Such a figure has little credibility as a true assessment of the market for two reasons. Firstly, it is not a genuine sale, and provides little more than a guess at what a potential purchaser may pay for the improved property; and secondly the qualifications and experience of the real estate agent are unknown. By comparison, Mr Cowley, who is an experienced valuer, has followed guidance set down by the Land Appeal Court in H and E Grahn v. The Valuer-General (AV89-246/7), 13 December 1990, unreported, which said at page 5: "A proper valuation calls for an exercise in balancing all the respective advantages and disadvantages inherent in or pertaining to a lot. " It has been held by previous courts that, in the absence of sales of comparable properties, it is appropriate for an experienced valuer to draw upon his experience and knowledge. For example, in the decision of King Ranch Pastoral Company Pty Ltd v. The Valuer-General (1968) 35 CLLR 255, the Land Appeal Court said at page 259: "In not attempting to do this, Mr Walker adopted a method of valuing based on knowledge and experience rather than one lacking precedent and authority. " -- 6 of 9 -- 7 However Mr Dare has not sought to demonstrate the extent of the real estate agent's experience in these matters, and on the evidence provided I place little weight upon their value. In seeking comparison of the subject with sales of vacant lands, I note that precedent in many courts has established that process as the preferred method of determining unimproved value. For example, comparable sales were adopted in R and MM Barnwell v. The Valuer-General (1990-91) LAC 13 QLCR 16, and in Commonwealth v. Arklay (1952) 87 CLR 159, at page 170, and also in WM and TJ Fischer v. The Valuer-General (1983) 9 QLCR 44 where the Land Appeal Court said at page 46: "It is indeed a fundamental principle of valuation that the best basis for assessment of unimproved value is the use of sales of vacant or lightly improved parcels. " Perhaps the clearest understanding however may be taken from the findings of the Land Appeal Court in PH Clough v. The Valuer-General (1981-82)8 QLCR 70 at page 76: "It has been judicially laid down many times and in many jurisdictions that in ascertaining unimproved value, sales of unimproved land of comparable quality, situation, etc., to the subject parcel, if they are available, are to be preferred as the best guide for arriving at unimproved value. The reason is obvious. In applying such sales there is no room for error in analyzing the value of improvements. " However, in relying on the use of comparable sales, the experienced valuer needs to ensure that he does not rely entirely upon only limited sales, where an error of judgment in applying the comparable sales could lead to an error in the final valuation. I note for example in Waalt Homes Pty Ltd v. Road Construction Authority (1987) 64 LGRA 346, where Gobbo J said at page 354: "It is well established that the use of comparable sales is to be preferred as the primary method of valuation, and it is obvious that the hypothetical development analysis method offers many opportunities for error in its various assumptions and calculations. But this argument can be given too much weight, for one error of judgment in applying a comparable sale can readily lead to a significant error in the final valuation. Particularly is this so if there are few sales and no obviously discernible trend. " I note also that the use of comparable sales provides evidence in the movement of a market over a period of time, particularly where vacant land is becoming scarce and therefore the resulting prices are indicating substantial increases. This was found in Hurdis v. The Minister (1957) 2 LGRA 132, where Hardie J. found at page 138: "Another matter which would be important to a prospective purchaser -- 7 of 9 -- 8 was the marked upward trend of values of land in the area during the period preceding the relevant date. ----- That increase, particularly in the latter portion of the period, would be a significant matter for a prospective purchaser to bear in mind when considering what would be a reasonable price for him to pay for the subject land. It has another significance also, in that it demonstrates that a sale otherwise comparable and useful for the purpose of establishing values in the area at the relevant date, would lose much of its comparability and usefulness if it took place at a point of time far or substantially removed from that date. " In adopting comparable sales I note also that minor differences between the sales and the subject do not render the sale as non-comparable. It is the skills of an experienced valuer which draw an appropriate balance between the properties. In this respect I note that a claim that superior workmanship and materials on a property, do not exclude a reasonable comparison. For example in Morrison v. Commissioner for Main Roads (NSW) (1964) 10 LGRA 314, it was found that superior quality should not be disregarded, but those qualities would be reflected in the market values of the properties being compared. And finally I turn to the matter of the dates of the sales supplied by Mr Eden, and note that six of his sales (1,2,3,4,7 and 8) all occurred after the date of valuation on 1 October 1996. Further I note that Sales 1,3,7, and 8 also occurred after the date of issue of the valuation at 10 March 1997. In considering the relevance of the timing of the comparable sales, I note that the courts have held that evidence may be considered within the relevant time period of the valuation extending up until the date of issue of the valuation. For instance the learned Member found in KP and RD Weisenberger v. The Valuer-General (1978) 5 QLCR 125 at page 127: "I agree with the submission of Mr Butler, Counsel for the Valuer-General, that my jurisdiction in so far as circumstances relating to the subject valuation are concerned does not extend in point of time to uses beyond 28th October 1976 the date of issue of the valuation. " That was also followed in RG McMurray v. The Valuer-General (1983) 9 QLCR 35, where the Land Appeal Court found at page 36: "As is stated in the decision handed down by the learned President, the Land Court, and on appeal the Land Appeal Court, can only consider the primary production activities carried on on the land between the date of the valuation (31st March 1980) and the date of the issue of the valuation (12th February 1981). " Following that precedent I am therefore only to consider Mr Eden's Sales 2, 4, 5 and 6. -- 8 of 9 -- 9 As noted previously, his Sales 5 and 6 do not have a frontage to a creek and therefore offer little comparison for that reason. On balance I find Mr Eden's Sale 2 at $146,000 (claimed as similar), and his Sale 4 at $165,000 (claimed as larger) provide the only reasonable comparison for his estimated unimproved value of $140,000. Neither comparison challenges Mr Cowley's determination of $150,000, which I have already adopted. Summary: In considering the requirements of the Valuation of Land Act I note that section 45(4) states: "45.(4). Such notice shall state the grounds of appeal and the appeal shall be limited to the grounds so stated and the burden of proving any and every such ground shall be upon the owner. " Clearly the burden of proof rests in this case upon the appellants, who, on the evidence supplied, have sought to establish that the Chief Executive has made an error of fact or was wrong in principle. In this matter I note the finding of the High Court of Australia in Brisbane City Council v. The Valuer-General H.C. (1977-78) 140 CLR 41, where Gibbs J. said at page 56: "In my opinion once it is shown that in making the valuation the Valuer-General acted upon a wrong principle, or made a serious error of fact, the presumption created by s.13(7) is rebutted. " On balance I believe the more recent figure of $150,000 as now argued by Mr Cowley will properly reflect the unimproved value of the subject. Having concluded that the appellants have proved their case, I note that direction in this matter is then supplied in section 33 of the Act which says: "33. Any and every valuation, or alteration of the valuation, of any land made, or purporting to be made, under this Act by the chief executive shall be deemed to be correct until proved otherwise upon objection or appeal or until altered or further altered. " In seeking to now argue for $150,000, the Chief Executive has signalled that he is prepared to further alter the valuation to that amount. I would agree with his conclusion. Conclusion: Having considered the whole of the evidence I am persuaded that the appellants have proved their case. The appeal is allowed and the determination of the Chief Executive is set aside, and the unimproved value of Lot 118 on RP 153276 is determined at One hundred and fifty thousand dollars ($150,000). (NG Divett) Member of the Land Court -- 9 of 9 --