Foote and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs

[2008] AATA 426

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2008] AATA 426

ADMINISTRATIVE APPEALS TRIBUNAL      )           No 2007/3416
  )           No 2007/3417

GENERAL  ADMINISTRATIVE  DIVISION		)
Re		OWEN FOOTE AND NANCY FOOTE

Applicants

And SECRETARY, DEPARTMENT OF FAMILIES, HOUSING, COMMUNITY SERVICES AND INDIGENOUS AFFAIRS

Respondent

DECISION

Tribunal Mr Egon Fice, Member

Date23 May 2008

PlaceMelbourne

Decision The Tribunal sets aside the decision of the Social Security Appeals Tribunal dated 21 June 2007 and remits the matter to the respondent to recalculate Mr and Mrs Foote’s entitlement to the age pension since 16 February 2007 on the basis that the Harrington Street property is valued at $580,000.

(sgd) Egon Fice

Member

SOCIAL SECURITY ‑ Age Pension ‑ assets test – valuation of holiday home – Separation Creek.

REASONS FOR DECISION

23 May 2008 Mr Egon Fice, Member      

1.      In August 2006 Mr and Mrs Foote, who had been receiving the age pension since January 2002, lodged a Real Estate Update form with Centrelink.  Centrelink acts as the service delivery agency for the Department of Families, Housing, Community Services and Indigenous Affairs.  They estimated the current market value of a holiday home, which they jointly own with their three children, at $358,500.  However, acting on Centrelink’s request, the Australian Valuation Office (AVO) valued the property at $800,000.  Accordingly, in October 2006, Centrelink informed Mr and Mrs Foote that their pensions had been reduced because of the increase in the combined value of their assets. 

2.      On 16 February 2007 an Authorised Review Officer (ARO) reviewed the decision made in October 2006 to reduce Mr and Mrs Foote’s rate of age pension.  The ARO agreed with the AVO valuation and accordingly affirmed the decision.  Mr and Mrs Foote sought review of the ARO’s decision by the Social Security Appeals Tribunal (SSAT).  On 21 June 2007 the SSAT affirmed the decision of the ARO.  Mr and Mrs Foote now seek a review of the SSAT decision.

3.      The only issue for me to determine is whether the valuation provided by the AVO on 2 October 2006 was correct.

RELEVANT BACKGROUND

4.      On 15 August 2006 Mr and Mrs Foote lodged a Real Estate Update Form with Centrelink following a request made by letter dated 7 July 2006.  Mr and Mrs Foote indicated that they held a 52 per cent interest in a property situated at 5‑7 Harrington Street, Separation Creek, (the Harrington Street property) while the remaining 48 per cent was owned by their three children.  They estimated the current market value of the Harrington Street property at $358,500.  The property was unencumbered.  Separation Creek is a small settlement off the Great Ocean Road and reasonably close to Wye River.

5.      Centrelink sought the assistance of the AVO, indicating that the property had previously been valued by the AVO in June 2003.

6.      On 2 October 2006 the AVO, after conducting a curb-side valuation, valued the property at $800,000.  The AVO report described the Harrington Street property as:

double storey C/Bond dwelling located on double residential site providing very good sea views.  Extensive decking around building.  Sales evidence supports valuation. 

7.      Centrelink informed Mr and Mrs Foote, by letter dated 3 October 2006, that their age pensions had been reduced due to the increase in the combined value of their assets. 

8.      After Mr and Mrs Foote indicated that they were not satisfied with the AVO valuation, Mr A. McDonald, an AVO valuer, inspected the property on 29 September 2006.  In his report dated 10 November 2006, Mr McDonald noted that the site of the dwelling was steep with no car-parking facilities.  He also noted that he had conducted a telephone interview with the customer on 2 November 2006.  Apparently, he was told that an old dwelling which was on the site had been demolished and replaced with a new dwelling, and construction of the new dwelling was completed within the last 12 months.  He noted that sales evidence in the area indicated inferior houses having been sold at between $730,000 and $750,000 in recent times.  He confirmed his valuation of $800,000.  In that report, he also stated that the site area was 1237 square metres and the area of the dwelling was 294 square metres.  He described the quality and condition of the dwelling as excellent. 

9.      The two properties Mr McDonald referred to as indicative of the selling price of dwellings in the area were:

(a)7 Olive Street, Skenes Creek; and

(b)2 Sarsfield Street, Separation Creek.

Mr McDonald considered that the Harrington Street property was superior to those properties.

10.     Mr and Mrs Foote obtained a current market appraisal of the Harrington Street property from Lorne Real Estate on 24 January 2007.  Mr M. Coutts provided a brief one page appraisal, making a comparison with the sale of four other properties, all situated in Harrington Street, between 2004 and 2006.  Two of those properties were vacant land.  Mr Coutts estimated the market value of Mr and Mrs Foote’s property to be in the range of $530,000 to $550,000.  On 16 February 2007 the ARO affirmed Centrelink’s decision on the basis that the AVO valuation was correct. 

11.     Mr and Mrs Foote sought review of the ARO’s decision by the SSAT which affirmed the decision on 21 June 2007.

VALUATION

12.     Mr and Mrs Foote engaged the services of Mercuri Property Consultants which provided a detailed valuation report dated 9 March 2007.  Mr Mercuri, a certified practising valuer, inspected the Harrington Street property on 28 February 2007.  According to Mr Mercuri, the measured site of the property is 1167.3 square metres.  He noted that the property was situated 15 kilometres south‑west of Lorne township and 2 kilometres from Wye River township, where there were shopping facilities.  There are no facilities at Separation Creek.  He referred to the dwelling as occupying 227 square metres.  The valuation methodology adopted by Mr Mercuri was a direct comparison approach.  He used comparative properties in Separation Creek and Wye River, making adjustments for variances in land size, condition of improvements, location and other pertinent value indicators.  Mr Mercuri noted the sales data for seven comparable properties, six of them at Separation Creek and one at Wye River.  After making the appropriate adjustments for the factors referred to above, Mr Mercuri was of the opinion that the market value of Mr and Mrs Foote’s property was $550,000.

13.     A Colac-Otway Shire valuation and rate notice issued to Mr and Mrs Foote in August 2005 describes the capital improved value as $358,500. 

14.     Mr and Mrs Foote obtained a further valuation from Nicholas Harvey Valuations.  Mr Harvey, a principal with that firm and a certified practising valuer, provided a report dated 27 August 2007.  Mr Harvey also gave oral evidence at the hearing of this matter.  He has been a valuer for some 29 years and he moved to the Surf Coast in 1997.  He is very familiar with property sales along the Great Ocean Road area.  He valued the property as at 29 September 2006.  He was of the view that at that time, the property was valued at $580,000.

15.     In his report dated 27 August 2007, Mr Harvey said that the Harrington Street property comprised a total area of approximately 1166.66 square metres.  He also measured the dimensions of the dwelling and said it was approximately 233 square metres.  This of 26 per cent smaller than the dwelling size arrived at by Mr McDonald.  Mr Harvey noted that the Separation Creek area and nearby Wye River are popular holiday locations.  He also noted that there are no facilities at Separation Creek and that the nearest facilities are at Wye River.  Mr Harvey said that although the views from the Harrington Street property are pleasant, the ocean views are somewhat distant given that the property is situated some two to three minutes drive from the Great Ocean Road.  Mr Harvey reported that market conditions for that particular area have remained generally steady after peaking in late 2003.  Mr Harvey also noted comparative sales including the Olive Street and Sarsfield Street Separation Creek properties, as well as vacant lots of land in Harrington Street together with two further properties at Wye River. 

16.     Mr Harvey’s opinion was that although the site area had been overstated by Mr McDonald, that was not significant.  However, he was concerned that the building area was substantially overstated.  In Mr Harvey’s opinion, the Olive Street and Sarsfield Street properties were both superior to the Harrington Street property.  Photographs were produced of both of those properties and the striking difference visible between those properties and the Harrington Street property is their proximity to the beach and the views of the ocean.  The Sarsfield property, in particular, is significantly closer.  According to Mr Harvey, the outlook, degree of slope and distance to the beach are critical in valuing what are, in effect, holiday homes.  Mr Harvey was of the view that the land value without a dwelling at the Harrington Street property was $325,000.  He based this on comparable sales in February 2005 and January 2006 of $337,500 and $300,000 respectively.  Based on that valuation, Mr Harvey was of the view that although Mr and Mrs Foote’s house is comfortable, it is unexceptional and could not possibly be regarded as adding some $400,000 to $450,000 to the land value, which would be required if one was to accept the AVO valuation. 

17.     Mr McDonald, who is employed by the AVO, is also a certified practising valuer.  He has a wide range of experience in the property market over a period of some 37 years.  Much of this was in western Victoria, in Geelong, and along the Surf Coast for about three years.  Mr McDonald said that his valuation was based on a curb-side inspection of the Harrington Street property on 29 September 2006.  He said he estimated the area of the dwelling to be 294 square metres although he was prepared to accept that the actual size was approximately 230 square metres.  Despite the size reduction which he was prepared to accept, Mr McDonald nevertheless maintained that his valuation of $800,000 was an accurate depiction of market value.

18.     Mr McDonald said that due to the neighbourhood character overlay which impacted on the Separation Creek area, there was a limitation placed on the size of dwellings that could be built on particular sites.  In fact, he said that that limitation was 25 per cent of the total land area at any one site.  According to Mr McDonald, the larger the plot of land, the bigger the size of dwelling which could be constructed on it.  Therefore, when looking at comparative sales, he took this factor into account.  He noted that a property at 9 Bass Avenue, Separation Creek was valued at $720,000 in April 2006.  He said that the site in that case was about 836 square metres and the house about 212 square metres in size, built in about 2003.  Also, it was situated even further away from the beach than the Harrington Street property.  However, the Bass Avenue property value was based on the asking price and there is no indication that it sold at that price.

19.     Mr McDonald also referred to two properties in Wye River which sold for $1.1 million dollars and $1.15 million.  However, few details were available about those sales and they are clearly in a different location.  

20.     Mr McDonald also said in cross-examination that he arrived at the $800,000 figure after discussions with Mrs Foote.  He seemed to indicate that Mrs Foote had accepted that valuation.  However, that does not indicate to me that the market would in fact value the Harrington Street property at $800,000.  In fact, Mr McDonald agreed that a different calculation of value could be made.  Although Mr McDonald said location is everything, I have no doubt that the quality of the dwelling and its size invariably will affect price.  This was Mr Harvey’s evidence.  It also concerns me that Mr McDonald was not prepared to alter his valuation after accepting that the dwelling size on the Harrington Street property was some 26 per cent smaller than what he had originally based his valuation upon.  That does not give me confidence in accepting his valuation.

21.     Furthermore, although Mr McDonald has been involved in property valuations for some 37 years in western Victoria, his experience along the Surf Coast area only amounts to three years.  At present he is based in Tasmania.  On the other hand, Mr Harvey has been valuing properties on the Surf Coast since 1997.  Therefore, I am confident that Mr Harvey’s valuation is more likely to be indicative of market value.  In fact, Mr Harvey provided a supplementary report dated 6 September 2007 following receipt of a letter setting out Mr McDonald’s valuation.  Mr Harvey commented that although Mr McDonald conceded that his estimates of the size of the dwelling and the land were incorrect, Mr McDonald was not prepared to alter his valuation despite that acceptance.  Mr Harvey also pointed out that in his experience, specialising as a valuer on the Surf Coast for the past 9 years, he was aware that the market had peaked in late 2003 and remained stable for the following three years.  This was contrary to Mr McDonald’s report in which he stated that demand for good quality properties in that area continued to be strong and did not display any evidence of reaching and staying on a plateau. 

CONCLUSION

22.     My view is that Mr Harvey’s valuation is likely to be more closely aligned with the market on the Surf Coast in the Separation Creek area than is Mr McDonald’s.  The comparable properties at Separation Creek, in particular the Olive Street and Sarsfield Street properties did not fetch $800,000, despite the fact that they are considerably closer to the beach with uninterrupted views.  While both of those properties appear to be weatherboards, they do appear to be in good condition.  Given that both valuers were of the view that location was important, it is reasonable to expect that those properties would fetch more on the market than the Harrington Street property.

23.     I was also concerned that Mr McDonald, who only conducted a curb-side valuation, despite accepting the Harrington Street property was smaller than he calculated and the dwelling was some 26 per cent smaller than his estimation, was not prepared to alter the valuation.  In my view, those are factors which will affect market value as suggested by Mr Harvey.  Although I have some doubts about the $580,000 valuation given by Mr Harvey, my role is limited to coming to the correct or preferable decision based on the evidence which is available to me at the hearing of this matter.  I am therefore limited to either accepting Mr McDonald’s valuation or Mr Harvey’s valuation as I believe that Mr Mercuri’s earlier valuation undervalues the property.  Accordingly, I am of the opinion that Mr Harvey’s valuation should be preferred because I am of the view that Mr McDonald’s valuation is higher than the market would have paid for the Harrington Street property in September 2006. 

24.     Therefore, the decision of the SSAT made on 21 June 2007 must be set aside.  Instead, this matter should be remitted to Centrelink to recalculate Mr and Mrs Foote’s entitlement to the age pension since 16 February 2007 on the basis that the Harrington Street property is valued at $580,000. 

I certify that the twenty-four [24] preceding paragraphs are a true copy of the reasons for the decision herein of
Mr Egon Fice, Member

Signed:          Olympia Sarrinikolaou

Clerk

Date of Hearing  14 February 2008
Date of Decision  23 May 2008
Advocate for the Applicants        Mr D. Stefanetti
Advocate for the Respondent       Mr Faisal Bakhtiar, Centrelink Legal Services