Tsiokantas and Secretary, Department of Social Services (Social services second review) - [2018] AATA 398

Tsiokantas and Secretary, Department of Social Services (Social services second review) [2018] AATA 398 (5 March 2018)
Division:GENERAL DIVISION
File Number: 2017/1881
Re:Maria Tsiokantas
APPLICANT

Secretary, Department of Social ServicesAnd
RESPONDENT

DECISION
Tribunal:Deputy President J Sosso
Date:5 March 2018
Place:Canberra

The Tribunal affirms the decision under review.
........................................................................
Deputy President J Sosso
Catchwords
SOCIAL SECURITY – age pension – assets test – market value of property in North Hobart – valuation by qualified and independent valuers – market appraisals by real estate agents – principles of valuation – valuation by valuer preferred – decision under review affirmed.
Legislation
Social Security Act 1991
Cases
Evans and Secretary, Department of Social Security [1993] AATA 497
Kirkovski v Secretary, Department of Family and Community Services [2004] FCA 790
Players Pty Ltd v Corporation of the City of Adelaide [2001] SASC 369
Re Blaszczyk and Secretary, Department of Family and Community Services [2005] AATA 1224
Re Worthing and Secrertary, Department of Families, Housing, Community Services and Indigneous Affairs [2008] FCA 328
Re Secretary, Department of Social Security and Langton (1993) 31 ALD 579
Spencer v Commonwealth (1907) 5 CLR 418
REASONS FOR DECISION
Deputy President J Sosso
5 March 2018
INTRODUCTION

Mrs Maria Tsiokantas (the Applicant) has been the recipient of the age pension since 20 September 2007. Her husband passed away on, or about, 22 March 2016 – Exhibit 2 paras 3, 5.
The Applicant and her deceased husband were the joint owners of three properties in Hobart: the principal home and two investment properties. The only property that concerns this determination is located in Ryde Street (the Ryde Street property).
The essential features of the Ryde Street property are as follows – Exhibit 1 T8 p. 57; Exhibit 1 T13 pp. 90, 91, 96:
(a)Residential property on a near level rectangular block in an inner Hobart suburb;
(b)Located approximately 1.6 km (1 mile) from Hobart CBD;
(c)A 25 minute walk, or 5 minute drive, to the CBD;
(d)Total property area is approximately 399 square metres (16 perches);
(e)Property is zoned “Inner Residential”;
(f)Single storey dwelling;
(g)Built circa 1930 – 1935;
(h)Total living area of the house is approximately 152 square metres;
(i)Brick and galvanised iron construction;
(j)Main walls brick and brickboard at rear;
(k)Galvanised iron roof;
(l)Open parking to side for 2 -3 cars;
(m)3 bedrooms;
(n)1 bathroom;
(o)Internal and external condition rated as “fair”;
(p)Rented to private tenants at $335 per week.
After the death of the Applicant’s husband the Department of Human Services (the Department) commenced an assets test review to determine the correct rate of age pension to be paid to the Applicant. The review was focused on the two investment properties as the Applicant’s principal home is an exempt asset in accordance with s 1118(1)(a) of the Social Security Act 1991 (the Act).
The Ryde Street property had been valued at $322,000 as at 31 March 2013 – Exhibit 1 T10 p. 66.
The Department’s preliminary valuation of the Ryde Street property was $445,000, and the Department notified the Applicant in a letter dated 28 May 2016 that her age pension had been reduced from $331 to $161 per fortnight because the value of her assets had increased – Exhibit 1 T5 p. 52.
The Applicant obtained a market appraisal of the Ryde Street property from Ms Alanna Hawkes, a Property Consultant with Harcourts Real Estate Pty Ltd. In her short report of 31 May 2016, Ms Hawkes said – Exhibit 1 T6 p.54:
“I have viewed the property at 42 Ryde street, and would suggest that given the current condition, the work that would need to be done, the location, and the current market, the property would be valued in the mid to high $300,000s.”
Also on 31 May 2016, the Applicant sought a review of the Department’s decision to significantly reduce her age pension payments.
The Department commissioned a valuation by MVS Valuers Australia Pty Ltd. A valuer carried out a kerbside valuation on 15 June 2016 and estimated the value of the Ryde Street Property at $400,000. The the property was not inspected, and the report contained sales evidence of three nearby properties sold in the period 1 May 2015 – 18 March 2016 – Exhibit 1 T8 pp. 57 -62.
On 28 October 2016 the Authorised Review Officer (ARO) modified the Department’s earlier decision and found that the correct market valuation of the Ryde Street property was $400,000. The Applicant’s age pension was increased to $235.37 per fortnight and she was paid arrears for the period 28 May 2016 – 12 September 2016 – Exhibit 1 T10 p. 66.
Despite this favourable decision, the Applicant remained of the opinion that the $400,000 valuation was too high and on 22 December 2016 requested a review by this Tribunal at tier 1 (AAT1).
The AAT1 hearing was convened on 27 March 2017, and the Applicant, who was self-represented, appeared by telephone and was assisted by a Greek interpreter. The Tribunal was constituted by Member Hyman who was presented by the Applicant with a further market appraisal. This appraisal, which is dated 14 December 2016, was prepared by Ms Natasha Lahey, a Sales Consultant of L J Hooker of Glenorchy, Tasmania.
Ms Lahey made the following observations – Exhibit 1 T11 p. 71:
“In the current market and due to the fact that your home is dated and would need money spent on it to modernise, I would appraise it at around $340,000 - $350,000. I have included some comparable sales in the area.”
Ms Lahey annexed to her letter a list of properties sold by L J Hooker in the vicinity in the period 25 June 2016 – 31 October 2016. Of the six properties listed, four appear to be units/townhouses – Exhibit 1 T11 p. 72.
The receipt of this appraisal by the Applicant set in train action that was to prove fatal to her application for review of the ARO’s decision.
On 30 December 2016, after receiving the L J Hooker market appraisal, the Applicant requested the Department to commission another market valuation of the Ryde Street property. This request was agreed to and a valuation was carried out by a valuer from MVS Valuers Australia Pty Ltd.
The valuation took place on 9 January 2017, and in this instance, the valuer carried out a full inspection of the property – Exhibit 1 T13 p. 96. The report includes photographs of the property from the road, inside the house (kitchen and bathroom) and the backyard.
The overall market conditions were stated as – Exhibit 1 T13 p. 95:
“Selling Period 0-6 months. North Hobart is currently achieving relatively strong results in the context of the wider Hobart property market.”
The valuer also outlined the valuation methodology adopted – Exhibit 1 T13 p. 95:
“Both the Sales Comparison and Cost Approach methods have been used. The Sales Comparison approach has been used as the primary method with the Cost Approach as a secondary check method. Sales Comparison compares the subject property to sales of other relatively comparable properties with adjustments made for points of difference. The Cost or Summation Approach adds the land value as analysed from comparable sales evidence to the depreciated value of the improvements where applicable.”
The market evidence outlined four sales of residential properties: one in Letitia Street, one in Argyle Street and two in Tasma Street. Each of these properties appear to be houses, as distinct from units and all are located in North Hobart within a short distance of the Ryde Street property. Ryde Street connects with Letitia Street to the east and Argyle Street to the west. Tasma Street is approximately 400 metres to the south and closer to the CBD.
Importantly, the valuer not only provided details of the address, sales date and sales price of the comparison properties, but also gave detailed information about the properties, including interior size, year of construction and description of premises, including parking, number of bedrooms and bathrooms. A short overall comparison was also provided.
In contradistinction, Ms Lahey’s appraisal comprised both houses and units, and while three of the six properties are located in North Hobart (one each in Argyle Street, Letitia Street and Newdegate Street), the remaining three are located outside of North Hobart (one in Mount Stuart and two in New Town).
The market value of the property was estimated in the MVS Valuers report to be $415,000 – Exhibit 1 T13 p. 97.
On 1 January 2017 the Applicant’s age pension was cancelled on the basis that her combined assessable assets exceeded the asset value limit.
This was the state of affairs when Member Hyman made his decision on 27 March 2017. In affirming the decision under review Member Hyman made these observations – Exhibit 1 T2 p. 6:
“The only valuation available in this matter which applies valuation principles and a valuation methodology is that done by the professional valuer, MVS National. It compares properties, it rates them against each other, it supplies supporting information, and it arrives at a conclusion by a transparent and comprehensible reasoning process. It is entirely possible that an alternative valuation would have arrived at a different figure; but only one valuation has been obtained. Real estate agents’ appraisals have only been taken into account by the courts when there is something plainly wrong with a professional valuation. I see nothing in the MVS National valuation that would lead me to discount it. No reason for disregarding it has been offered and no alternative professional valuation has been obtained. In the circumstances, I have no choice but to accept the valuation of MVS National.”
On 3 April 2017, the Applicant sought a review of Member Hyman’s decision – Exhibit 1 T1 pp. 1 – 2. The stated reason for the review was as follows – p. 2:
“We did our research and believe that the value is $350,000 - $400,000, not $400,000. This is the value of the agent (Real estate agent).”
This matter was heard in Canberra on 31 January 2018. The Applicant did not appear, but was represented by her son, Mr Peter Tsiokantas who was linked in by telephone from Tasmania. The Respondent was represented by Ms Sarah Dinkha.
THE LEGAL FRAMEWORK
The legislative regime regulating the payment of the age pension is located in the Act. A means test is applied to persons seeking and retaining the age pension.
As with social security payments generally, the primary purpose of the age pension is to maintain a basic level of income to those aged persons who would otherwise not have sufficient assets or income to provide for themselves, at least to a level that would be expected by the Australian community – see Secretary, Department of Social Services v Garvey (1989) 22 FCR 136. In short, the payment of the age pension is not an entitlement that automatically accrues once a person reaches the threshold age requirement, nor is it intended to provide a supplementary flow of income from the taxpayer to persons who through the accumulation of income or assets, or both, are able to independently care for themselves.
Section 55 provides that if a person is not permanently blind, their age pension rate is worked out by using Pension Rate Calculator A at the end of s 1064.
Module A of Pension Rate Calculator A sets out an eleven step process for the calculation of the age pension. Importantly for this matter, Step 9 requires the application of the assets test using Module G for calculating the reduction for assets. Step 10 requires the deduction of assets from the maximum payment rate to achieve the assets reduced rate. Step 11 requires that a person be paid the lower of the income reduced rate and the asset reduced rate.
Section 1118 provides that certain assets are to be disregarded in calculating the value of a person’s assets. Of relevance is s 1118(1)(a) which provides that the value or interest of a person in their principal home is to be disregarded.
Module G1 prescribes the method of calculating the value of a person’s assets. A key element of this methodology is determining if a person’s non-exempt assets exceed the assets value limit. The assets value limit is prescribed in Module G3. For a person who is not a member of a couple, and has a principal home, the assets value limit is $250,000.
Module G prescribes how the value of a person’s age pension is reduced when there is an assets excess. Clearly the greater the value of assets owned by a person in excess of $250,000 the smaller the amount of age pension is payable, until, as in the matter, it is reduced to nil.
Despite the potentially serious consequences that flow from the valuation of a person’s assets, the Act provides no guidance to a decision-maker for the methodology to be adopted for the valuation of those assets.
The absence of statutory guidance has, over a lengthy period, been remedied by a series of Tribunal determinations and Federal Court decisions.
The starting point is reference to the Federal Court decision of Kirkovski v Secretary, Department of Family and Community Services [2004] FCA 790 where Bennett J made the following observation:
“17 Under the Social Security Act 1991 (Cth) there is no statutory provision specifying any method for the valuation of assets. The test which seems to have been applied by the AAT in a majority of cases is a net market value approach based on comparable sales and the ‘best use’ to which the asset could be put (see Fong and Secretary Department of Family and Community Services [2002] AATA 173; Re Emberts and Repatriation Commission (1988) 16 ALD 19). Following the same approach, the AAT accepted Mr Dyson’s valuation and made a finding that the value of the property was $220,000. This was a finding of fact and was open to the AAT on the evidence before it. On the basis of this finding of fact, the AAT affirmed the decision to cancel the applicant’s Newstart Allowance because the value of the applicant’s combined assets was above the allowable asset limit.”
The genesis for this approach can be found in the decision of the High Court in Spencer v Commonwealth (1907) 5 CLR 418. Griffith CJ said (at 432):
“In my judgment the test of value of land is to be determined, not by inquiring what price a man desiring to sell could actually have obtained for it on a given day, i.e. whether there was in fact on that day a willing buyer, but by inquiring ‘What would a man desiring to buy the land have had to pay for it on that day to a vendor willing to sell it for a fair price but not desirous to sell?’. It is, no doubt, very difficult to answer such a question, and any answer must be to some extent conjectural. The necessary mental process is to put yourself as far as possible in the position of persons conversant with the subject at the relevant time, and from that point of view ascertain what, according to then current opinion of land values, a purchaser would have had to offer for the land to induce such a willing vendor to sell it, or, in other words, to inquire at what point a desirous purchaser and a not unwilling vendor would come together.”
Issacs J provided additional guidance (at 441):
“We must further suppose both to be perfectly acquainted with the land, and cognisant of all circumstances which might affect its value, either advantageously or prejudicially, including its situation, character, quality, proximity to conveniences or inconveniences, its surrounding features, the then present demand for land, and the likelihood as then appearing to persons best capable of forming an opinion, of a rise or fall for what reason soever in the amount which one would otherwise be willing to fix as the value of the property.”
This approach to ascertaining market value has been endorsed by the International Assets Valuations Standard Committee – Re Secretary, Department of Social Security and Langton (1993) 31 ALD 579 at [33], and was specifically referred to and applied by Member Hyman in his decision – Exhibit 1 T1 pp. 5-6.
Whilst the above authorities are useful as the starting point, it is often the case that arriving at a valuation which meets with the satisfication of all parties is an elusive goal. As Griffith CJ highlighted, ascertaining market value is a subjective exercise and inherently imprecise, based, as it is, on hypothetical facts.
In these circumstances, the Tribunal has, since its establishment, tried to provide some guidance so that the degree of imprecision inherent in the valuation process is minimised and that certain baseline standards are articulated to ensure that the best possible estimation of value is achieved.
Reference in this context can be made to Evans and Secretary, Department of Social Security [1993] AATA 497 where the following observations were made (at [8]):
“In Re Woodhouse and Secretary, Department of Social Security 12 ALD 474, this Tribunal accepted a principle that valuation that neither bids at public auction nor accepted offers to purchase can be regarded as evidence of valuation and only concluded contracts are admissible as evidence (McDonald v Deputy Federal Commissioner of Land Tax (NSW) [1915] HCA 54; (1915) 20 CLR 231 applied). This Tribunal does not understand that approach to limit evidence of valuation to concluded contracts: i.e. that only concluded contracts would suffice as appropriate evidence of the sale value. Where there is no sale or indeed a recent sale then the market value is the estimate of what the willing but not anxious buyer would pay the willing but not anxious seller to conclude a sale; Re: Reynolds and Secretary, Department of Social Security (1986) 11 ALN N193. It is upon that principle that a qualified and experienced valuer’s report would be accepted into evidence and that evidence weighed having regard to the process of arriving at the valuation. Obviously a figure plucked from the air, albeit by a qualified valuer, is of no use, whereas a valuation done independently and by an experienced and competent qualified valuer would carry considerable weight and unless rebutted must be taken as conclusive. It is for the Tribunal to be satisfied that a valuation was supported by the qualities referred to in Re Reynolds. In that event relevant questions are:
-    Is the valuer appropriately qualified?
-    Is the valuer experienced in the sort of valuation under consideration?
-    Was the valuer’s state of mind independent of the purpose for which the value was sought?
-    Was the valuation carried out in accordance with accepted practices of the profession?”
It is also the case that where the Tribunal is presented with conflicting “valuations” with one party relying on market appraisals by real estate agents (or persons working for real estate agents) and the other on a valuation by a professional valuer, the latter is almost always preferred. The reason for this is not just the fact that a valuer has specific training and skills but also the fact that a valuer brings to the exercise an independence of mind and clarity of purpose that a real estate agent does not. Real estate agents lack the independence of professional valuers as their name connotes. They bring to the appraisal a formulation often predicated on the hope of a commission on a future sale. This is not to depreciate their appraisals. Real estate agents have unrivalled local knowledge of sales, location and market pressures. However, it would be unusual for the Tribunal to prefer an appraisal over a valuation, and if this occurred it would usually be grounded in some obvious deficiency in the valuation.
There have been instances where the Tribunal has preferred a real estate agent’s appraisal over a valuation by the Australian Valuation Office. For example, in Re Blaszczyk and Secretary, Department of Family and Community Services [2005] AATA 1224 the Tribunal preferred a real estate agent’s appraisal over the AVO valuation, as the latter was of poor quality whereas the former was a superior and more thorough report. In other instances, the Tribunal has formed a view midpoint between the competing real estate appraisal and valuation – Re Worthing and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2008] AATA 328.

The Tribunal is, of course, not bound by a valuation prepared by a professional valuer, and can form its own conclusions based on the evidence presented. Nonetheless, there would need to be sound reasons for the Tribunal to adopt this course of action, because, as was pointed out in Evans, a valuation by a professional valuer carries considerable weight, and, prima facie, provides a sound foundation for a determination of valuation. The Tribunal should avoid the error of defaultling into the role of a third valuer – Players Pty Ltd v Corporation of the City of Adelaide [2001] SASC 369 at [81].
CONSIDERATION
The Respondent has provided the Tribunal with two valuations. In both instances the valuer is AAPI (CPV) certified. The first valuation was only a kerbside exercise, and the valuer did not enter the property or closely examine the premises. In these circumstances the second valuation, which involved a thorough examination of the premises and property is preferred.
The MVS valuation of 9 January 2017, which was countersigned and reviewed by another AAPI (CPV) certified valuer, contains the following key information:
(a)Photographs of the front of the property, kitchen, bathroom and backyard;
(b)Comprehensive details of all aspects of the property, including size, shape, accommodation, fixtures, PC items, car accommodation, improvements and essential repairs;
(c)Zoning and building restrictions;
(d)Encumbrances and access to the property;
(e)Current market conditions;
(f)Description of valuation methodology: “Both the Sales Comparison and Cost approach methods have been used” – Exhibit 1 T13 p. 95;
(g)Specific market evidence involving sales of four nearby properties over the twelve months prior to the valuation, detailed comments on those properties and a concise comparison.
Mr Tsiokantas submitted that the Tribunal should prefer the real estate appraisals. He made the very valid point that the two real estate appraisals before the Tribunal were prepared by persons who had experience in the local real estate market and were in a superior position to make a practical estimate of market value because of that acute local knowledge.
As previously noted, the Tribunal does seriously consider market appraisals by real estate agents, and has, at times, given them great weight. Accordingly, there is no suggestion that a party who submits a market appraisal by a real estate agent in support of a suggested value of a property, will not receive from the Tribunal the appropriate degree of attention and consideration.
However in this instance the Tribunal prefers the MVS valuation of 9 January 2017 over the market appraisals, not just because the MVS valuation was prepared by a AAPI (CPV) certified valuer, but because the report is detailed, transparent, the valuation methodology is consistent with the law and it provides detailed and soundly based sales comparisons.
The real estate market appraisals, in comparison, lack almost all of the above characteristics. Ms Lahey’s report comprises three paragraphs and three sentences. It is not clear if she visited the property or merely conducted a desktop appraisal. Certainly her report contains no details of the Ryde Street property other than it is “dated” and requires “money spent on it to modernize” – Exhibit 1 T11 p. 71.
The earlier report of Ms Hawkes is similarly brief and, unlike the report of Ms Lahey, does not have any comparable sales information. Ms Hawkes does state that she viewed the property, but her two paragraph two sentence report is so brief that it is impossible to glean the basis of her “valuation” in other than in the most basic of ways.
These reports can be contrasted with a comparative market analysis prepared by Harcourts on the other investment property owned by the Applicant – Exhibit 1 T12 pp. 73 – 88. That report is comprehensive, contains relevant information and photographs and appears to be a very professional analysis. Although that report is irrelevant to the disposition of this matter, it highlights how appraisals by real estate agents can be prepared which, prima facie, would carry considerable weight by the Tribunal.
In these circumstances the Tribunal finds that the MVS Valuation Report of 9 January 2017 provides a sound basis for the market value of the Ryde Street property, and for the reasons outlined above, is preferred over the two real estate market appraisals relied on by the Applicant.
DEICISON
The decision under review is affirmed.
I certify that the preceding 56
(fifty-six) paragraphs are a
true copy of the reasons for
the decision herein of
Deputy President J Sosso
………………………………………….
Associate
Date: 5 March 2018
Date of the Hearing: 31 January 2018
Advocate for the Applicant: Mr P Tsiokantas
Solicitor for the Respondent: Ms S Dinkha, Department of Human Services