The client instructs us what the purpose of the valuation is, this forms the basis for the valuation. The purpose influence the method and the process that we will follow to do a professional valuation and submit to the client a professional valuation report.
We specialise to provide a valuation service pertaining to aspects of agricultural (farm) property value or the value of a business.
The methodologies and procedures used by us for the intended uses are the classics; the sales comparison approach, cost approach and the income capitalization approach, used worldwide and we ensure that we stay in touch with the local developments and developments in all prominent countries in the world.
WHEN IS A PROFESSIONAL VALUATION NEEDED BY A FARM OWNER ?
- Establishing a value at which to sell or sell
- Establishing a value for a shareholding in a business
- Making a decision regarding financing
- Establishing a basis for taxation
- Establishing the terms of a lease
- Financial reporting
- Tax reporting
- The preliminary analysis of just compensation in expropriation proceedings
- The determination of just compensation for servitudes
- Establishing the value for donations
- A settlement for damages in legal cases
- A portfolio analysis
- Establishing a fair partnership value
- Estate planning and deceased estates
THE THREE CLASIC METHODS
In the sales comparison approach, value is indicated by recent sales of comparable properties in the market and other supporting transactional information.
In the cost approach, value is estimated as the current cost of reproducing or replacing the improvements (including an appropriate entrepreneurial incentive or profit) minus the loss in value from depreciation plus land value.
In the income capitalisation approach, value is indicated by a property’s earning power, based on the capitalisation of income.
THE VALUATION PROCESS
The valuation process is complex and a systematic procedure a valuer follows to provide answers to a client’s questions about real property value. It needs qualification and experience, to select the correct methodology to develop a reliable opinion.
Therefore the farm owner must use a valuer who has the necessary knowledge and experience.
We specialise and provide reliable opinions of value, based on academic and practical experience.
THE VALUATION REPORT
To the client, the valuation report is the tangible result of the valuation process.
The valuation report is an informative and persuasive document that informs and educates the reader about a property. Therefore, it is imperative that the valuer must work to develop a logical and fluent style that effectively communicates his analysis and conclusions to the client.
It is very important to provide the farm owner with a professional report.
LAND CLAIMS, THE CONSTITUTION AND EXPROPRIATION
When valuing a farm for expropriation proceedings, it is important that the valuer must apply the requirements of the Constitution of 1996, the Expropriation Act of 1975 and the Expropriation Bill of 2016, as well as relevant case law.
Section 25 of the Constitution of 1996, act 108 of 1996, stipulates the following:
“(1) No one may be deprived of property except in terms of law of general application, and no law may permit arbitrary deprivation of property.
(2) Property may be expropriated only in terms of law of general application –
(a) for a public purpose or in the public interest; and
(b) subject to compensation, the amount of which and the time and manner of payment of which have either been agreed to by those affected or decided or approved by a court.
(3) The amount of the compensation and the time and manner of payment must be just and equitable, reflecting an equitable balance between the public interest and the interests of those affected, having regard to all relevant circumstances, including-
(a) the current use of the property
(b) the history of the acquisition and use of the property
(c) the market value of the property
(d) the extent of direct state investment and subsidy in the acquisition and beneficial capital improvement of the property; and
(e) the purpose of the expropriation.
(4) For the purposes of this section-
(a) the public interest includes the nation’s commitment to land reform,…………”.
Thus, it is important to understand that the market value of the property is only one out of five factors – although an important one – that must be taken into consideration, when determining the amount of a just and equitable compensation.
Expropriation Act of 1975.
The Expropriation act of 1975 determines, the following :
The value is the price that would have been obtained for the property, if it was sold on the open market by a willing seller to a willing purchaser, on the date of the expropriation.
- The market value is the price the seller would have obtained during an imaginary transaction.
- The property must be valued for its current use, but if a more advantageous use is probable, it must be taken into account.
- The value must be determined as it was on the date that the notice of the expropriation was served on the owner.
- The willing seller and willing buyer principle refers to a notional seller and a notional buyer, and not to the specific current owner of the property as the seller, or to the state / specific legal entity as the buyer.
o Thus, no subjective or emotional value that the property may have for the current owner may be taken into account, when a valuation is done of the property.
o If the neighbour of the subject property is a willing buyer, and the property has a certain potential value for the neighbour that he is willing to pay for, the market value has to be based on the price the neighbour is willing to pay.
- The open market principle requires that proper steps were taken to advertise the property and let all likely purchasers know that the land is in the market for sale. Every person desirous of purchasing is able to make an offer.
- The compensation may not be more than the summation of the market value of the property and the real financial loss the expropriation caused the owner.
- If the subject property exists out of more than one title deed, every title deed can be valued on its own as well as the whole property as a unit. The highest market value when the summation of the value of all the title deeds is compared to the value of the property as a unit, is the compensation amount that should be paid.
Expropriation Bill of 2016
The Expropriation Bill of 2016 has been published in the Government Gazette on 26 January 2015.
The Bill seeks to align the Expropriation Act, 1975, with the Constitution and to provide a common framework to guide the processes and procedures for expropriation of property by organs of state.
This Bill states very clearly that the market value of the subject property is only one out of five factors that must be taken into consideration when determining the amount of a just and equitable compensation. The legislators view is that market value is not more important than the other four factors.
Special provision is made in clause 12 for factors, which must not be taken into account when the amount of compensation is determined. These include:
(1) the fact that the property has been taken without the consent of the expropriated owner or expropriated holder;
(2) the special suitability or usefulness of the property for the purpose for which it is required by the expropriating authority, if it is unlikely that the property would have been purchased for that purpose in the open market;
(3) any enhancement in the value of the property, if such enhancement is a consequence of the use of the property in a manner which is unlawful;
(4) improvements made on the property after the date on which the notice of expropriation was served upon the expropriated owner and expropriated holder; except where the improvements were agreed on or were undertaken in pursuance of obligations entered into before the date of expropriation;
(5) anything done with the object of obtaining compensation there for.
Contact Us for your professional valuation needs.