Woolley and Secretary, Department of Families, Community Services and Indigenous Affairs

[2007] AATA 1842

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2007] AATA 1842

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No  V 200601042

GENERAL  ADMINISTRATIVE  DIVISION		)
Re		HAROLD and BEVERLEY WOOLLEY

Applicants

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

Respondent

DECISION

Tribunal Mr John Handley, Senior Member

Date8 October 2007

PlaceMelbourne

Decision The decision of the Social Security Appeals Tribunal made on 21 September 2006 under review is affirmed.

(Sgd)  John Handley
Senior Member

  

SOCIAL SECURITY‑ valuation of principle home and curtilage located on rural property – dispute concerning valuation and methodology – planning restrictions by local shire – absence of evidence of valuation from applicants – respondent’s evidence preferred ‑ artificiality of exercise of valuation – decision affirmed

Social Security Act 1991 (Cth)  s 11 (4), s 11A (1) and (3)

Spencer v Commonwealth of Australia (1907) 5 CLR 418

REASONS FOR DECISION

8 October 2007   Mr John Handley, Senior Member

1.      This review concerns the valuation of the applicants’ real estate.  This exercise is necessary in order to determine the totality of the value of the applicants’ assets for the purposes of calculating their age pension entitlements.

2.      A representative of the Australian Valuation Office (AVO), Mr Len Miller, in a report to Centrelink advised that he and his office adopted an International Valuation Standard (IVS) of market value as ‑

The estimated amount for which a 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.

3.      Mr Miller said that that definition was adopted from a decision he understood to be Spencer v Commonwealth of Australia which I now understand to be reported at (1907) 5 CLR 418. In language not identical and certainly less contemporary, Barton J at 436 – 437 decided:

. . . . that a claimant is entitled to have for his land what it is worth to a man of ordinary prudence and foresight not holding his land for merely speculative purposes, nor, on the other hand, anxious to sell for any compelling or private reason, but willing to sell as a businessman would be to another such person, both of them alike uninfluenced by any consideration of sentiment or need.

Isaacs J at 441 decided in similar terms but added:

We must further suppose both [purchaser and seller] 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 reasons so ever in the amount which one would otherwise be willing to fix as the value of the property.

4.      In the present application, the applicants are the registered proprietors of 68.39 hectares of land at Egan Lane, Newham.  The both live on the property in a house with surrounding outbuildings.  There is no dispute that the applicants are homeowners (s 11 (4) Social Security Act 1991) nor is there a dispute that they are members of a couple (partnered).  Additionally there is no dispute between the applicants and the respondent that the total value of the 68.39 hectares of land is $640,000.  The issue in dispute is the value of the principal home and the two surrounding hectares (contained within the total acreage) (s 11A (1) and (3)).  That is in issue because the value of the house and curtilage is to be excluded from the assets test.  Put another way, the greater the value of the house and curtilage, the greater the amount of age pension payable.  Mr Miller assessed the value of the house and curtilage at $320,000.  The applicants initially submitted that the valuation of the house and curtilage was $560,000 (T12).  At the Social Security Appeals Tribunal (SSAT) (from which a decision was made giving rise to this review), the value then submitted was $580,000.  In a Statement of Facts and Contentions lodged prior to the commencement of the hearing in this review, it was then submitted by the applicants that the value of house and curtilage was $470,000.

5.      The exercise in valuation of house and curtilage does involve a degree of artificiality because it involves the valuation of property which is incapable of being sold, that is, on a selling market, because it is incapable of being excised from the title which has been issued over the whole of the real estate owned by the applicants.  Put another way, a valuation is required of an exempt asset which is incapable of being sold.

leonard norman miller

6.      Mr Miller has been employed by the AVO since 1961 and qualified as a valuer of real estate in 1966.  He was previously the Assistant State Manager for Victoria for the AVO.  For the last four years he has valued principally in the district commencing at the Calder Freeway extending north to Bendigo and east to Hall’s Gap.  The subject property at Newham is within that district.  Mr Miller estimated that he has performed valuations over 20,000 properties comprising industrial, commercial, rural and residential during his time with the AVO.  He also estimated that 99.5 per cent of valuations undertaken by him have been at the request of Centrelink.  He has completed a number of reports and valuations concerning the subject property and on each occasion concluded that the total value of the real estate was $640,000 and the house and curtilage had a value of $320,000.  His calculations at arriving at those figures are reproduced as follows:

7.      Mr Miller said that the method of valuation is to inspect a subject property in detail and to have regard to comparable sales in the immediate area (of the subject property).  If that is not possible, the sales outside the immediate area are considered and distinguished.

8.      Mr Miller reported that the applicants’ property was located in a farming district but thought that potential purchasers would not necessarily be concerned with agriculture but rather would be influenced by lifestyle.  That of itself, in his opinion, had the potential to distort the valuation.  By regard to his knowledge of the district, a valuation of $3000.00 per acre ($7413.00 per hectare) was applied to the land having regard to the features of northern views to Mt Macedon, its relative size of 68 hectares, having mature cyprus trees on the western and southern boundaries (providing stock protection), paddocks offering reasonable grazing, a seasonal creek, four dams and a bore drilled to 80 feet in depth.  Mr Miller was of the view that the potential purchaser of such a property would be a Melbourne buyer who would be seeking a lifestyle opportunity.  In his view, the nature of the paddock grasses and the soil would not permit returns economically from stock grazing or from crops.

9.      Mr Miller was aware that the property is located within the Shire of Macedon Ranges Planning Scheme and is zoned as rural conservation.  Presently, a 40 hectare limitation exists on sub‑division, largely because the Shire is concerned with containing or reducing domestic properties being built because of issues associated with disposal of domestic effluent.  He was aware that considerable controversy exists within the Shire by land owners having their properties locked up and owners particularly of smaller lots being refused building permits.

10.     Mr Miller acknowledged that the valuation of the applicants’ house and curtilage did involve an artificial exercise because those two hectares under the present planning scheme would be incapable of sale, (that is, approval for sub‑division and therefore excision from the remaining acreage is unlikely to be approved).  He approached valuation of the whole of the applicants’ property by regard to the features of it, as recorded above, and by regard to the most valuable asset on it which he regarded as being the domestic dwelling.  In valuing the house, he had regard to its size of 159 square metres and estimate the construction cost, new, at $1000 per square metre.  The cost of the 89 square metres of surrounding verandahs was estimated at $350 per square metre.  The valuation of the dwelling and verandahs was therefore assessed at $189,450.  That valuation was then discounted by 1 per cent of value per age after construction causing a reduction for depreciation of 40 per cent (the house and verandahs were built 40 years earlier).  Regard was also had to numerous outbuildings of $3300.00 and the total value therefore assessed for the value of the domestic dwelling and the domestic outbuildings was $118,300.

11.     In assessing the value of the curtilage, three options were available for use.  The option selected for the purposes of an AVO valuation for Centrelink purposes is the valuation which will give the greatest benefit to the beneficiary.  Those three options comprise either the value of the land, in this case being two hectares at $7413.00 providing a value of $14,826.00.  Another option was to value an equivalent house block which for the purposes of the report was selected as a house block in Bendigo of $85,000.  In evidence, Mr Miller said that he had reviewed that assessment and decided that a more appropriate valuation would be of a house block in Sunbury, which was closer to Newham which he would assess at $130,000.  The third remaining option was to assess the value of the land by regard to either comparable sales in the immediate area or outside the immediate area which may need to be distinguished because of particular features and locations.  Mr Miller said that he obtained records from State Government sources and learnt that only three properties with equivalent, or near equivalent, acreage were sold at or about the time of his valuation.  However each of the properties had differing features to that of the property in issue in these proceedings and it was therefore impossible to compare like with like.  One of the three properties was located at Coach Road, Newham which was of 2.05 hectares which was sold in March 2006 at $282,500.  It differed from the applicants’ property because it was closer to Woodend, it was within a stones throw of the Hanging Rock Nature Reserve and was regarded therefore of being a superior property to that of the applicants.  Another property was located at Plant’s Road, Woodend which was a bush block adjoining the Calder Freeway of 2.25 hectares sold in October 2005 for $173,500.  Whilst that property was within the township of Woodend, it abutted the Calder Freeway and occupiers would have been exposed to traffic noise.  It was regarded as being an inferior property to that of the applicants.  The remaining property was at Chamber’s Lane, Ashbourne which was regarded as being in a different market but a similar distance to Woodend as the Plant’s Lane property.  It is of 2.93 hectares sold in May 2005 at $175,000.

12.     Having regard to the location of the applicants’ property, the 2.05 hectares at Coach Road was regarded as being the property against which a comparison could reasonably be made.  Having regard however to its location to the Hanging Rock Nature Reserve (and the relative distance of the applicants’ property from that location) it was considered that the applicants’ property had a lesser value than that to which the Coach Road property achieved at its sale of $282,500.  Accordingly the valuation of the applicants’ curtilage was assessed at $200,000 and it was that sum which was chosen as the curtilage value.  Accordingly that sum together with the sum of $118,300 when rounded up formed the basis for the valuation which was given to Centrelink of the applicants’ principal home and curtilage of $320,000.

13.     Mr Miller said that upon review of the initial valuation, he spoke with two real estate agents in Woodend.  He said neither could remember any two hectare sale of house and land in the district.  When the applicants’ house and two hectare curtilage was described, the estimate given by Mr Keating, one of the two agents consulted, was of $175,000.

14.     Mr and Mrs Woolley were represented at the hearing by Mr Barry Sutton, who is a neighbour, who has lived in the district since 1979, is a retired accountant, is a member of the Audit Committee of the Shire of Macedon and is the member of a local land owners committee.  In cross‑examination he suggested to Mr Miller that the applicants’ real estate, exclusive of the house and curtilage was without value, as had been the comments made by the local real estate agent, Mr Keating, at a recent land owners meeting, because of the prohibition existing within the Shire on issuing building permits.  Mr Miller said that a smaller block of land with a building permit would have a greater value than a smaller block of land that was denied a permit but the latter would have a value.  That is to say, it was not valueless.  He emphasised that his task was to value the whole of the real estate of the applicants including the domestic dwelling and other buildings.  He did not provide a market value of the house because it is incapable of being sold on the market and he separately therefore undertook the exercise of assessing the value of the house for the purposes of the assets test.  He thought that the value of the house and the curtilage would be greater if it was excised from the whole of the remainder of the applicants’ property but such an exercise would be fictitious and artificial.  Additionally it was his opinion that such an exercise would be inconsistent with the definition of market value (refer earlier).

15.     Mr Miller re‑affirmed his valuation of the curtilage at $200,000 in comparison to the Coach Road, Newham property, again emphasising the value to a potential purchaser of the latter property because of its proximity to the benefits to be found at the Hanging Rock Nature Reserve.

submissions

16.     Mr Bakhtiar on behalf of the respondent relied on the Statement of Facts and Contentions lodged by him prior to the commencement of the hearing.  Additionally he submitted that the evidence of Mr Miller should be preferred because he is a qualified valuer with extensive experience in conducting valuations in the district where the subject property is located.  He also noted that the applicants had not provided any valuation of their own by a suitably qualified person.

17.     Mr Sutton submitted that the valuations completed by Mr Miller were artificial and were not related to market criteria or trends.  He submitted that the property exclusive of the curtilage was of little or no value.

conclusion and reasons for decision

18.     The valuation submitted by the applicants in the Statement of Facts and Contentions lodged prior to the hearing was of $471,950 rounded down to $470,000.   That sum was made up of the sum of $189,450 being the value given by Mr Miller to the house and the verandah without reduction for depreciation together with the sum of $282,500 being the same value as the property at Coach Road, Newham.

19.     I dismiss the submission made by the applicants with respect to valuation.  They have not provided any evidence from a suitably qualified valuer.  Whilst the applicants and Mr Sutton are familiar with the Newham district, their estimates of value and the methodology for valuation, with respect, are speculative.

20.     The property at Newham is not an equivalent property.  It is in a different location, it is closer to the township of Woodend and is also close to the Hanging Rock Nature Reserve.  Whilst I acknowledge that the applicants’ property does have views to the Macedon ranges and is serviced by a sealed bitumen road, on the description given by Mr Miller and by regard also to the location of the property at Coach Road Newham, it does have a value superior to that of the applicants’ curtilage.  It is a property which would attract a lifestyle buyer because of its proximity to the Woodend township and the Hanging Rock Nature Reserve.  Taking account of these features is consistent with the comments of Barton J in Spencer (refer earlier).The applicants’ property cannot be given the same equivalent value.  The value of the applicants’ curtilage cannot be estimated with any precision because it is incapable of being sold.  The Coach Road property and its valuation was adopted because it was the price achieved between a willing buyer and a willing seller involved in an arm’s length transaction after there had been proper marketing.  It was also a price achieved close to the relevant date of valuation in this application (September 2005).  On review it seems to me that the discount applied by Mr Miller to the applicants’ curtilage was appropriate and equally therefore the valuation given to the curtilage by him of $200,000 in my view, is appropriate.  I also note for the purposes of this exercise that it was the greater of two other options available to him and the applicants therefore have benefited by his decision to select the value of $200,000.

21.     The valuation submitted by the applicants’ concerning the domestic dwelling is inappropriate because it does not take account of depreciation over its life of 40 years.  I agree with the opinion expressed by Mr Miller that a home of more recent construction would be likely to attract a greater price and I think it unlikely that a 15.9 square metre brick veneer home with verandahs and being built 40 years ago would, without land, attract a price of $189,450 in an exchange between a willing buyer and a willing seller.  I agree with the conclusions expressed by Mr Miller that it is not possible to estimate a market value of the home because of itself it is incapable of sale especially when the exercise currently under contemplation requires a value to be given without regard to the real estate upon which it is built.

22.     I re‑affirm and agree with the conclusions expressed, by both parties, that the exercise of fixing a value for house and curtilage does involve artificial considerations but this is required by the legislation because the house and curtilage are exempt assets.  But doing the best possible in the circumstances, I am satisfied that the methodology adopted by Mr Miller and the conclusions reached by him, were appropriate and reasonable.  I think on balance that his evidence and his conclusions are to be preferred.  Mr Sutton said that he knew of examples where the Shire of Macedon has overturned decisions made by its planning officers and has issued building permits to owners of property of less than 40 hectares.  If the applicants are capable of sub‑dividing their property it may be that the house and curtilage in issue in these proceedings could attract a greater market value than $320,000.  If that were so, it would cause a positive impact on the rate of age pension payable.  Such an exercise however is a matter for the applicants.

23.     In all of the circumstances I am of the view that the decisions initially made by Centrelink and subsequently affirmed by the SSAT should be affirmed.

I certify that the 23 preceding paragraphs are a true copy of the reasons for the decision herein of:
Mr John Handley, Senior Member

Signed:         Grace Carney, Personal Assistant

Date of Hearing  1 October 2007
Date of Decision  8 October 2007
Representative for the Applicant    Mr B Sutton
Departmental Advocate                  Mr F Bakhtiar