Houses under construction Multi unit residences Insurance valuations
NZVGP 504 Valuation of Houses Under Construction & Houses to be Built or Previously Unoccupied
Valuation Issues for Proposed Properties
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• Shall be clearly stated that the property has not yet been completed • Valuation is based on the following assumptions
– The plans and specifications provided
– Upon completion of a Code Compliance Certificate – The valuation date (normally date of report)
• Duty of Care
– Client, mortgagees and third parties
Two tier markets
• There is likely to be a difference between the value of a new house and its re-sale value in its same condition.
• Comparable sales evidence should include not only similar new houses but also re-sales of similar properties.
• Showing both value as a new property and the re- sale value.
• For mortgage lending purposes, value should be based on re-sale value of the property.
Valuation Process of Proposed Houses
• Check and study plans and specifications – Building consent and stamped plans
• Locate, identify and inspect the section
• Prepare a full valuation report as if it was completed as at the valuation date
• – Based on sales comparison and replacement cost approaches • – Two tier markets? case
• Subject to completion of the property in accordance with plans and specifications and issuing of Code Compliance Certificate by Territorial Authority
• The Valuer assumes no responsibility for unforeseeable events that alter market conditions prior to the completion of the development
Progress Payment Inspections
• Ensure work carried out complies with plans and specifications:
• – Check measurements
– Is house within legal boundaries?
– Compliance with Territorial Authority yard requirements?
• Loose building materials should not be included in the valuation.
• Note standard of workmanship, materials etc.
• List of works has been completed and works required to complete.
Progress Payment Report
• Value the progress of work and recommend progress payments: – Value of work to date
– Cost to complete
– Value on completion (the original valuation and date thereof)
– Advise if there has been significant change in the market since the original valuation assessment.
Calculation
• Determine stage of construction
Say frame, substructure, site preparation complete for a small house this would equate to 24.2 %
If house costs $3000/m2 x 200 m2 total cost = $600,000.
Therefore $600,000 x 24.2 % = $145,200 with $454,800 still to complete.
Check$145,200+$454,800=$600,000
The assessed Market Value (excluding chattels) as if complete is $1,000,000.
Afterdeductingtheassessedcosttocompleteof$454,800thisleavesan amount of $545,200
Wouldaprudentpurchaserpay$545,000forapartiallycompletedhouse?
Residential Standing Instructions Version 1.3
3.3 Progress Payment Reports
Appendix – Valuation Process for construction of a new dwelling
Report Qualifiers NZVGP 504 clause 2.6
• Satisfactory completion based on plans and specifications • Final inspection by valuer
• Confirmation of value
• Right to review value if necessary and other clauses
Final Payment Inspection
• Any work remaining to be done.
• Whether the final balance of the monies outstanding may be
• Inform client of the importance that a Code of Compliance Certificate must be issued prior to releasing final monies.
Multi-unit residences
• Cross lease • Unit title
Cross Leases
– A legal construct back in 1950s
– A lease of land not a subdivision of land
– To avoid subdivision regulations and no payment of reserve contributions
– The Resource Management Act 1991 changed this and no more advantage
Cross Leases
– The fee simple of the head title
of the land
– The leasehold title of each estate, usually for a term of 999 years
– Restrictive covenants for the exclusive use of individual units (e.g. gardens or parking space)
Cross Leases
• Problems
– Alterations & Extensions
– Surveyor to redraw new flats plan
– Lack of standardisation
– Common areas maintenance
– Some earlier strata titles have no state guarantee
Unit titles
(Strata titles)
• The Unit Title Act 2010
– Provides a system of
separate ownership
– State guaranteed
• Unit plan
– Principal unit
– Accessory unit
– Common property
• Body corporate
Property Interests
• Ownership interests
– The relative value of the unit in relation to each of the other
units on the unit plan
– Include both principal and accessary units
– Determined by a registered valuer
– Equivalent to the role of “unit entitlements” under the Unit Title Act 1972
Property Interests
• Utility interests
– Proprietor’s obligations and rights in relation to the long-term maintenance
fund, the operating account and other costs
– By default the same as the ownership interests – But may be amended (flexibility)
Method of unit entitlement determination
1. Identify common property.
2. Assess the current total market value for each individual unit (both land and improvements).
3. Assess the current market value for each accessory unit (both land and improvements).
4. Deduct the accessory value from the total value to give the principal value for each individual unit.
5. Convert to a proportional basis.
Insurance Valuations
• ANZVGP 104 Valuations for Insurance purposes • Indemnity value
• Reinstatement cost
• Replacement cost
• Reproduction cost
ANZVGP 104 Valuations for Insurance Purposes
• 6.0 Assessing Indemnity Value states the valuer may use a cost or market method, or income method. Furthermore, The extent of insurance may differ depending on the circumstances. A case Falcon v State Insurance (1975) is mentioned, and this is a very well-known case that indicates the cost or value of improvements may not always not be the measure that indemnifies the client.
• The Valuer should use a covering letter in addition to the standard report come up detailing any such matters that are of a serious matter. As an example, evaluate may identify asbestos in the building and point this out to the client. The value should not make an estimate for the removal as is a specialist role. In addition, the letter should have a clear summary of the property including what has been valued.
• In order to prove that the valuer has been to the property, photos should be taken for every inspection. In the past, there has been rumours that some values
have not actually inspected the property. This would be equivalent to negligence , because if not inspected, how would the valuer know if the property still exists?
1. Much residential insurance work occurred post the 2011 Christchurch earthquakes, where insurance companies moved to defined sum insurance policies. Prior to this, insurance policies did not always specific an amount, meaning that the insurance companies could be exposed to adverse widely impacting events.
2. Some firms do much work involved with this come up while others don‘t depending on how they see the risk.
3. Highly specialized buildings may suit the services of our quantity surveyor who is more expert in cost estimates than the valuer.
4. At times, an appreciation of legal rights and interests may additionally need to be commented on by the valuer. This may include matters relating to shared driveways etc., where costs may be shared between owners.
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