The value of valuers

The SA Institute of Valuers (SAIV) agrees with Tshepo Diale (24 February) and Andrew Emslie (8 June) that the current land reform process leaves much to be desired.

The value of valuers
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Land ownership is an emotive issue and open to collusion and fraud. This article seeks to answer Mr Emslie’s question, “How do these valuers reach the values?” The Department of Rural Development and Land Reform (DRDLR) generally calls for tenders from valuers registered on its panel of valuers, for the valuation of a property. These tenders are evaluated on price, BEE credentials and other factors.

The tender requires the appointee to determine the property’s ‘market value’. The International Valuation Standards Committee defines market value as “the estimated amount for which the property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion”.

This definition of market value is what Mr Emslie refers to as “willing buyer, willing seller”. It is the method preferred by our courts and in most legal systems in the developed world. Farm valuation is a specialist field and should only be performed by a suitably qualified valuer. This valuer must be genuinely independent; providing the cheapest quote does not confirm his independence or qualify him to perform farm valuations.

The process

The valuer begins the valuation process by thoroughly inspecting the farm, as well as physically inspecting other local farms recently sold and interviewing affected parties such as farmers and agents. Non-market-related transactions between, say, a father and son, are excluded.  After adjusting for quality, size and attributes such as drylands, grazing, orchards and improvements, the valuer calculates the total value of the farm. If worked out correctly, this figure should be comparable with other recent farm transactions.

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It is possible that certain valuers have inflated values due to incompetence or influence from agents, officials or farm owners. Potential for corruption exists, but can be reduced significantly if, for example, two competent, independent valuers are appointed. This approach has already been used in North West, and is supported by our members, who believe that the reduced risk of fraud more than offsets the additional fees.

In theory, the DRDLR should never pay more than market value for a farm. If the willing buyer, willing seller negotiation fails, the department has the power to expropriate the property at market value, as provided for in the Expropriation Act and Constitution. The DRDLR should always use this power rather than forcing the sale by ‘sweetening’ the transaction.

In most of the northern provinces, the instructions for farm valuations clearly exclude all land reform transactions from being comparable sales. This condition is an indirect acknowledgement by DRDLR that it has overpaid for land. As Mr Emslie points out, payment for land in excess of market value creates unrealistic expectations among other potential sellers, distorting the market. Furthermore, the supply of land is fixed. As DRDLR acquires land, available land for sale diminishes.

Demand thus increases as previous sellers are added to prospective purchasers. Diminishing supply with increasing demand results in higher prices: a competent valuer will appreciate that this economic cycle is a reality in today’s market.
It should be noted that agricultural economists determine the productive value of farms on an investment/return basis. This approach is not compatible with the definition of market value, as it normally produces values below those which willing buyers and sellers will pay.

And if we add changing commodity markets, weather patterns, crops and other factors, the flaw in basing market value on ‘productivity calculations’ becomes even clearer. We encourage the public to report perceived valuer misconduct, as in the four cases mentioned by Mr Emslie, to the SA Council for the Property Valuers Profession (SACPVP). As the statutory body regulating professional property valuers, the council has a mandate to protect the public from unscrupulous valuers.

The SAIV is a non-profit organisation committed to uplifting the standard of the valuation profession in SA. We undertake to regulate our members’ conduct and will investigate any matter brought to our attention. We are also committed to furthering the education of our members through seminars and workshops.

Contact the general secretary of SAIV at
[email protected].
Contact the SACPVP on 012 348 8643.

The views expressed in our weekly opinion piece do not necessarily reflect those of Farmer’s Weekly.