Brockhoff and Secretary, Department of Family and Community Services

[2002] AATA 234

DECISION AND REASONS FOR DECISION [2002] AATA 234

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No W2001/295

GENERAL ADMINISTRATIVE DIVISION          )          
           Re      Cecil Brockhoff     
  Applicant
           And    Secretary, Department of Family & Community Services            
  Respondent

DECISION

Tribunal       Mr R D Fayle, Senior Member     

Date9 April 2002

PlacePerth

Decision      Pursuant to section 43 of the Administrative Appeals Tribunal Act 1975, the decision of the Social Security Appeals Tribunal of 6 August 2001, under review, is affirmed.
  ....……..(sgd R D Fayle)...........................
  Senior Member
CATCHWORDS
SOCIAL SECURITY – Asset test – Valuation of rural land – Australian Valuation Office valuation – Other market information.

REASONS FOR DECISION

9 April 2002 Mr R D Fayle, Senior Member                 

1. This is an appeal by Mr Cecil Brockhoff ("the applicant"), from the decision of the Social Security Appeals Tribunal ("SSAT") of 6 August 2001. The issue concerns the value of the applicant's land, comprising 40.4686 hectares, near Northhampton, Western Australia, for the purposes of the asset test in relation to the applicant's age pension entitlement.  The applicant asserts that the value is less than the value asserted by the Secretary, Department of Family & Community Services ("the respondent").

2. The applicant was unrepresented at the hearing whilst Mr Steve Ellis, an advocate with the Advocacy & Administrative Law Team, represented the respondent. The applicant gave evidence. The applicant called Mr John Bell, Australian Valuation Office ("AVO") valuer, to give evidence. The Tribunal had before it the documents filed pursuant to s37 of the Administrative Appeals Tribunal Act 1975. It also took into evidence the following exhibits:

   A1      Three water analysis reports;
   A2      Wesfarmers Dalgety letter to the applicant dated 21 June 2001;
   A3      Documents promoting auctions of two properties on 29 April 2000; and
   A4      An aerial photograph of Lot AA16, showing a paddock of almond trees.

3. Due to the confidential nature of evidence that may be given by the applicant as to a price at which he would accept an offer for the subject land, an order was made pursuant to s35(2) of the Administrative Appeals Tribunal Act 1975, that disclosure, other than to the respondent's representative and the presiding member and officers of the Tribunal, of any such evidence, oral or otherwise, be prohibited. As it turned out no such evidence emerged during the proceedings.

4. The land in question ("the subject land") is an estate in fee simple in Victoria Location 5680, certificate of title volume 1583 at folio 256, registered in the applicant's name, (bearing no registered encumbrance), (T22, pp.62-63).  As mentioned, the land comprises some 40.46 hectares.  It is located on Drage Road, less than 2 kilometres from the township of Northhampton, Western Australia.  The land is zoned "rural".  Northampton is a relatively small rural township of about 850 people.  It is located 50 kilometres from Geraldton, a major rural/coastal town.  Shopping facilities are quite limited in Northampton.

5. The applicant applied for the age pension on 20 September 2000 (T5).  The application form stated that the value of the subject land was $70,000.  The pension was granted on the basis of the disclosures in the application but subject to the respondent being satisfied about those values.  Initially, on 6 November 2000, the AVO notified the respondent that the value of the subject land was $120,000, (T12), resulting in a reduction in the applicant's entitlement to age pension.  The applicant wrote to the respondent, objecting to the valuation, and contending that the value at that time was $69,200, (T14).  That valuation was based on two properties then for sale (and presumably which the applicant believed were comparable to the subject land).  He extrapolated from those asking prices and arrived at equivalent values for 70 hectares, being $53,763 and $43,750 respectively.  In the result the respondent asked the AVO to review its valuation.  Upon review the AVO reassessed its value to $90,000 (below) and provided a detailed written report in support, (T22).  That report contains a "Market Analysis" detailing four sales, of properties in the proximate vicinity.  Those sales occurred in October 1995, October 1997, November 1997 and June 1999.

6. The applicant demonstrated to the Tribunal that he had carried out a great deal of research to assist his case.  His principal objective before the Tribunal was to point to what he submitted were flaws and shortcomings in the valuation report relied upon by the respondent in assessing its value of the subject land.  Whilst the applicant did not present any direct evidence of an alternative value he reasoned that the respondent's value was unreliable and on the basis of his evidence, should be reduced.  The valuation adopted by the respondent, being that of the AVO (Mr Bell) was:

   20 hectares arable cleared and pastured @ $3,000/Haxb  $60,000
   20.46 hectares, unarable grazing @ $1,500/ha  30,690
   Total  $90,690
   Adopt $90,000 ($2,224/Ha overall)  (T22, p.59)

7. The applicant, for reasons that follow, submitted that the overall value of the land should be $1,132/hectare.  Indeed, the applicant said in evidence that "that's about the valuation".  40.46 hectares, at $1,132 per hectare, equates to $45,800.  However, in his Asset Value Assessment form, for the purpose of his age pension assessment, the applicant had contended that the appropriate value should be $70,00, (see T7, p30).  As mentioned, when asked (and assured of confidentiality), the applicant declined to tell the Tribunal at what price he would be a willing seller.  This was in the context of the applicant having indicated previously in evidence that he was not an anxious seller although the property had been offered for sale without any offers or inquiries having been made.

8. The applicant's criticisms of the AVO report and the responses to those by Mr Bell follow.  Mr Bell is a Senior Valuer with the AVO.  He holds the degrees of B Ec (Hons), UWA and B Bus (Valuations), Curtin.  He is a licensed valuer and an Associate of the Australian Property Institute.  Mr Bell has considerable experience in valuation work although for about 18 years until 1997 he worked as an Economist.  Mr Bell's credentials and relevant experience were not questioned.  The Tribunal observes that he was not inflexible and was prepared to listen to what the applicant had to say about the report, responding objectively each time.

9. The AVO valuation was directed to arriving at a value of land as at 2 November 2000, the date of its first valuation, (T12), as this was a review of that original valuation of $120,000.

10. When questioned by the applicant, Mr Bell conceded that the report implied that the subject land was close to "markets".  The applicant had previously run between 30 and 40 breeding ewes on the subject land.  In his experience that was the maximum or optimum that the property could sustain.  The applicant had cut contour gullies in the rocky and hilly terrain to prevent soil erosion and promote the grazing capability of that country.  Each year he would market his lambs.  The closest market was at Midland near Perth, several hundred kilometres south.   The applicant had to arrange for a cartage contractor to deliver the sheep to the markets.  Midland is the closest livestock market.  This often resulted in delays in getting the livestock to market and missing the "best price".  Mr Bell conceded that that was the case however, as it affected all sheep farmers in the area, it had no impact on relative values.

11. The applicant was also critical of the description of the land by the AVO.  He contended that it was "stony all over".  The applicant also challenged the suggestion that the arable grazing country consisted of good red brown gritty to loamy soils over clay.  He disputed the existence of clay on the property, asserting that is was essentially a stone base and not fit for farming.  Mr Bell did not resile from his description of the arable land as having a clay base, which he said was consistent with land in that immediate vicinity.  In support, he referred to the natural vegetation on the property as described in the report (with which the applicant took no issue).  The report states that the subject land is timbered with "jam, black wattle, carara flood gum and river gum along the creek flats extending into stony/granite unarable country on rises", (T22, p.57).  Apparently jam and black wattle in particular require a clay base.  Whatever the fact in this respect, both the applicant and Mr Bell agree that 20 hectares of the land are arable, cleared and pastured (although not suitable for farming) whilst the rest is unarable but suitable for grazing as was its use when the property held sheep.  The applicant told the Tribunal that he never had to cart in or purchase extra fodder to feed his sheep as there was sufficient pasture.

12. The applicant disputed the AVO report in relation to the water quality.  The applicant produced three water analyses (A1).  The report of 5 February 2002 indicates that the total dissolved solids measure is 2000 parts per million.  It was submitted by the applicant that this compares with Perth drinking quality water of 400-500 parts per million.  The analysis indicated that the property's dam water contained no lead, which the applicant said refutes the AVO's implication that the water seeping into one of the two dams originates from a disused lead mine.  Mr Bell conceded that he might have made a factual error in that respect.  However, he said that he based his statement on what he was told by the applicant at the time of the site visit.  Be that as it may, the fact is that the water analysis showed no lead which, the applicant concedes, results in better quality water than otherwise.  Further, despite the applicant making several minor points about the water quality statement in the AVO's valuation, the applicant did not challenge the assertion that the water quality was suitable for the sheep breeding operation previously carried on at the subject land.

13. The Market Analysis section of the AVO report analyses four sales of properties proximate to the subject land.  The first is location AA63. It is 85.6 hectares (that is more than double the size of the subject land).  This property adjoins the subject land.  The sale occurred in October 1995.  According to the AVO the price disclosed a per hectare value of $1,927 HAXB.  Mr Bell said as a general proposition for valuing rural land, the larger the holding the relatively lower is the per hectare value.

14. The next property, location 7216, sold in June 1999.  It is 88.9 hectares.  The AVO's value, based on the sale price adjusted for buildings, is $2,024 HAXB.  The applicant challenged the amount allocated by the AVO for buildings, arguing that the amount of $70,000 was too low considering the nature of the brick and tile house and sheds.  In response Mr Bell said that when valuing rural holdings HAXB working from a sale price, one must not confuse cost or replacement cost of buildings with value impounded in the overall price.  The applicant produced a photograph of the house and sheds and put it to Mr Bell that he had understated their value for the purpose of arriving at his disclosed HAXB value.  Mr Bell disagreed, saying that although the house was in good condition, it was not recent and indeed the sheds in question were not in good repair although serviceable. Mr Bell explained that he reduces the value of brick and tile buildings by 1 percent per year and that the other buildings were in a state of disrepair.  He confirmed that his deduction from the sale price of $70,000 was conservative in the circumstances.  The applicant did not produce any alternate professional/independent opinion as to whether the AVO's deduction of $70,000 from the sale price to arrive at the HAXB value was low.

15. In relation to both locations A63 and 7216, 85.6 hectares and 88.9 hectares respectively, Mr Bell observed that as these properties are more than twice the size of the subject land.  In this respect he reiterated his opinion that it is not unexpected that their respective HAXB value would be lower than that for the subject land.

16. The third sale was of location AA16 in November 1997.  That property is 33.9 hectares.  The AVO adjusted sale price HAXB is $3,544.  Adjustments were made by the AVO to adjust the sale price for an amount allocated for the value of the "older style house, timber framed iron clad shearing shed and timber famed iron clad machinery shed all in fair condition".  The applicant challenged this value as too high on two bases.  Firstly, that the reduction of $70,000 for the buildings was inadequate and secondly, that when the property was sold it had a developing almond orchard of some 3,000 trees.  Mr Bell could not be moved in relation to the first adjustment for the buildings, offering the same reasons as for the other similar complaints.  The applicant, in relation to the almond orchard, produced an aerial photograph in support, (A4).  He submitted that when Mr Bell inspected the property for the purpose of comparing it with the subject land, most of the almond trees had died due to disease and would not have been evident.  Mr Bell conceded that the price paid in 1997 could have a value for the establishing almond orchard impounded in it.  It seemed to the Tribunal that Mr Bell was somewhat taken by surprise about the extent of the almond tree plants in 1997 and had not made any reduction of the sale price to adjust for the fact that those trees no longer existed.  However, Mr Bell opined that a developing but not established almond orchard of some 3,000 trees would not necessarily impute a significant increase in any sale price.  He mentioned several reasons for that opinion.  The Tribunal understands that Mr Bell accepted that his HAXB of $3,544 would have been lower, but not significantly, had he known about the existence of the developing almond orchard at the time of sale.

17. The other sale considered by the AVO is location 1002, comprising 38.95 hectares, sold in October 1997.  It was fully developed, without buildings and located 10 kilometres south of the township.  The AVO's valuation is $3,273 HAXB.  The applicant maintained that the property had much better water quality than the subject block as evidenced by the fact that now there is established a viable rock melon farm, which requires considerable water of better quality than has the subject land.  Mr Bell agreed that the water quality on location 1002 is probably better than that of the subject land.  However, he said that the subject land has been valued on the basis of its maximum and best use being the grazing of sheep, and the water quality on the property is consistent with that use.

18. The latter two properties, locations AA16 and 1002 are 33.9 hectares and 38.9 hectares respectively.  Mr Bell said for that reason they were more closely representative of the subject land.  In the opinion of the Tribunal, and based on the evidence before it, the applicant has made a case that the HAXB values attributed to location AA16 ($3,544) and location 1002 ($3,273) are on the high side. However, the Tribunal does not have sufficient evidence to quantify a relevant reduction in sale price to arrive at respective HAXB valuations.  The Tribunal notes that the AVO's valuation of the subject land is split between arable cleared and pastured land and unarable grazing land.  The former, which would seem comparable in land quality to locations AA16 and 1002, is $3,000 HAXB.  As that value is materially lower than the adjusted HAXB sale price references to locations AA16 and 1002, the Tribunal is of the opinion that the AVO has not erred in arriving at the relevant HAXB value for that part of the subject land.

19. Mr Bell said that in ascribing a value by reference to sales evidence of comparable properties, valuers do not consider sales made subsequent to the date of valuation.  It was for that reason, he said, that he did not consider the sale of location AA10, the Johnson Road property, sold on 29 November 2000 for $128,000.  This property is 113 hectares.  The applicant relies on this sale as evidence in support of his contention that the subject land should be valued having regard to that sale, that is, $1,132 HAXB.  The applicant said that location AA10 (Johnson Road), is near location AA16, that is, about 7 kilometres north of the townsite and "very similar type country" to the subject land.  The applicant contended that the Johnson Road property sale, at a per hectare price well below that of location AA16, that is, $1,132 compared with the 1997 sale of $3,544 is indicative of the falling market price for properties in the area.  He submitted that for those reasons the AVO's overall valuation of the subject land at $2250 HAXB is excessive.  Mr Bell in response said that the Johnson Road property was nearly three times the size of the subject land and would therefore attract a lower per hectare price.  Similarly, unlike the subject land which is on the edge of town, the Johnson Road property is over 7 kilometres from town.  Mr Bell contended that a property located on the edge of town, such as the subject land had a wider market embracing persons who preferred to live in town and commute to the property.  The size of the subject land added to this attraction.  For those reasons it is to be expected that the HAXB valuation of such a property would be greater than a larger property more remote from town.  The applicant said that he did not think that in country terms, there is much difference between being 2 kilometres and 7 kilometres from town as country people are used to travelling distances to get from one place to another.

20. In a similar vein, the applicant referred to two sales in the vicinity to which the AVO had made no reference.  The first was location AA2766, 486 hectares, sold in November 1999 for average $1,080 per hectare.  The second, location 5342, 339 hectares, sold in January 1998 for average $1,195 per hectare.  Neither property had buildings.  Mr Bell responded by saying that these were not comparable to the subject land since they were much bigger.  Therefore one expects a lower average per hectare price.  He said it was for that reason that he did not include them in his deliberations to arrive at the AVO's value.

21. The balance of the applicant's evidence relies on real estate listings, exhibits A2 and A3.  Exhibit A2 is a letter from Wesfarmers Dagety Real Estate dated 21 June 2001 and lists 7 properties ranging in size from 137 hectares to 404 hectares.  The offer prices range, (applying averaging) from $1,025 to $1,382 per hectare.  The applicant submitted that this is evidence that the AVO valuation of the subject land was excessive.  Mr Bell said that only comparable property sales data is relevant when arriving at a valuation.  It was for that reason and also the fact that none of the properties are of a comparable size in any event, that that information would not be considered in arriving at the valuation.  Exhibit A3 is a copy of two brochures advertising an auction of two separate lots in Harvey Road Northampton.  The applicant told the Tribunal that both properties are close to town and are comparable in size to the subject land.  He understood that both were passed in without any offer, evidence he said, of the depressed market for comparable properties. Consistently, Mr Bell said that only comparable property sales data is relevant when arriving at a valuation.
    The Submissions

22. The applicant, in his submission, contended that he had done enough to show the Tribunal that the value adopted by the respondent, relying on the AVO report (T22), was clearly deficient in that it contained factual errors, included irrelevant matters and had not taken into account relevant matters.  In particular, it had not taken into account the sale of the Johnson Road property, some 25 days after the valuation date.  He submitted that that sale (in a temporal sense) was much closer to the valuation date than was any of the four sales considered.  And further, he submitted that sale was of a comparable property in a topographical and best use sense.  Therefore, he submitted, that sale is more indicative of the value of the subject land about the time of the valuation, November 2000.  He submitted that he had demonstrated that there appeared to be no market for properties such as the subject land (because of the lack of success in selling a number of properties – A2 & A3).  It was for all of those reasons, the applicant submitted, that a more reliable value of his property should be based on the HAXB for the Johnson Road property, that is, $1,132.

1. Mr Ellis, for the respondent, submitted that the applicant had not succeeded in demonstrating that the AVO valuation (T22) was unreliable in the circumstances.  Indeed, he submitted that despite Mr Bell conceding on a few points where he may have made a factual error or omission, those were of a minor nature at best.  Therefore, since the HAXB values adopted had not been shown to be excessive or unreasonable, they should be accepted as appropriate in the circumstances.  Mr Ellis submitted that the AVO valuation (T22) was competent and professionally carried out according to industry standards, relying on recent comparable sales data and adjusting, in the case of a rural property, for the value allocated to buildings.  He said that the Tribunal must accept that in allocating a value for buildings on rural properties, such as the subject land, regard should not be had to what the building cost or its replacement cost.  He contended that the Tribunal should adopt Mr Bell's evidence (not disputed) that the appropriate value is that which most likely would have been impounded in the sale price by the willing but not anxious buyer, in the context of the total property and its best use.

2. Mr Ellis referred the Tribunal to an earlier decision in Drage and Secretary, Department of Family & Community Services (unpublished, reference W2000/198) and references in that decision to the Tribunal's decision in Re Woodhouse and Secretary, Department of Social Security (1997) 12 ALD 474, in support of his contention that the basis for valuation is to assume an informed buyer and seller, each of whom is willing but neither of whom is anxious, to enter the sale contract. He further referred the Tribunal to the reference in Re Woodhouse to the judgment in R v Brown (1867) 2 LRQB 630 which implies that the land should be valued having regard to its highest and best use.  He submitted that it was not disputed that the subject land's best use is for grazing sheep, the basis of the AVO valuation.

3. Finally, Mr Ellis submitted that the applicant had not produced any evidence directly related to the subject land's valuation and that the only such evidence is the AVO valuation (T22).  He submitted that the applicant does not discharge his onus of proof that the respondent ought to adopt another value by simply challenging the efficacy of the independent valuation on which the respondent has relied.
   Discussion and decision

4. The Tribunal acknowledges the respondent's submissions as relevant in its determination of this decision.  The Tribunal accepts that the applicant went to considerable lengths in his attempt to flaw the AVO's valuation (T22) on which the respondent has relied for its valuation.  However, the evidence, particularly that of Mr Bell, the author of the AVO's valuation, which goes to matters taken into account not mentioned specifically in the report, supports the conclusion reached in that report.  The Tribunal accepts that the valuation to the extent that it relied upon adjusted sale prices for locations AA16 and 1002 may have tended to overstate the value of the arable portion of the subject land.  However, since the value for that portion of the subject land was significantly below the HAXB adjusted prices respectively, the Tribunal concludes that the value adopted, of $3,000 HAXB, is reasonable and not overstated.  Similarly, the applicant has not demonstrated that the value adopted by the respondent for the "unarable grazing land" portion of the land, being 20.46 hectares, of $1,500 HAXB is excessive.  The Tribunal notes the evidence that that portion of the land is contoured to enhance the pastures and provides suitable grazing for sheep, the best use of the property.  It further notes that the evidence supports the conclusion that the water quality is sufficient to support sheep (but not necessarily to farm, grow orchards or crops).  Those matters together with the evidence of the benefits of being on the edge of the township support the value of $1,500 appropriated to the "unarable" portion.  In the Tribunal's opinion, whilst it may not be industry practice to take into account documented sales of proximate comparable properties after the date of valuation, that to have taken into account a sale within a month would have, at least, affirmed the value.  Hindsight does not seem to be out of place in any reasonable estimate of value, which exercise is necessarily more subjective than objective – it is clearly not an exact science.  There does not seem to be any good reason to ignore closely proximate (in temporal terms) comparable sales as at least a guide to the reliability of the adopted valuation.  Had the Johnson Road property been in every respect reasonably comparable to the subject land then the Tribunal would have been of the opinion that that was appropriate evidence to take into account in testing the reliability of the valuation otherwise reached.  However, for reasons expressed above the evidence is that due to significant size difference and its location relative to the townsite, the Johnson Road property sale is not sufficiently comparable to provide a reliable alternate to the AVO's valuation.

5. In passing, the Tribunal simply observes that by refusing, in confidence, to nominate a price at which he would willingly sell the property, the applicant denied the Tribunal the opportunity of additional evidence to be considered.  However, the Tribunal respects the applicant in refusing to nominate such a price.  It is clear to the Tribunal that the applicant is a witness of truth.  It is also recognised that any such admission may have carried little weight, depending on what may have followed such a disclosure.  For those reasons the fact that no such price was nominated has had a neutral effect on these reasons.
   Decision

6. For the above reasons and pursuant to section 43 of the Administrative Appeals Tribunal Act 1975, the decision of the Social Security Appeals Tribunal of 6 August 2001, under review, is affirmed.

   I certify that the 28 preceding paragraphs are a true copy of the reasons for the decision herein of Mr R D Fayle, Senior Member

   Signed:         ............(sgd V Wong)....................................
     Associate

   Date/s of Hearing:  2 April 2002.
   Date of Decision:  9 April 2002.
   The applicant was unrepresented.
   Advocate for the Respondent: Mr S Ellis, Advocacy and Administrative Law Team, Centrelink.