Valuation

Principles into Practice

Richard Hayward, Richard Hayward

• Publisher: Estates Gazette
• Year: 2014
• ISBN:
  9781135333690
• Edition: 6
• Topic: Law
• Subtopic: Property Law
• Index: Law

The sixth edition of Valuation: Principles into Practice continues to be both a core text for all students undertaking surveying qualifications and a handy reference guide for valuers in practice. The new edition has been thoroughly updated with nine completely re-written chapters. The book provides extensive details of valuation principles and practices in agricultural, commercial, residential, industrial and leisure sectors. The balance of academic and practicing contributors explore the law and regulation within the field of valuation and include chapters on valuations for financial investments, taxation and rating insurance, as well as useful case studies and detailed approaches to valuation procedures for a variety of properties from farms to public houses.

With extensive market knowledge and the obvious benefit of his involvement with the five previous editions, Richard Hayward brings the sixth edition well into the twenty-first century. The book continues it's tried and tested melding of 'town and gown', and the twenty six contributors to the twenty three chapters are all leading specialists in their fields.

1

Agricultural Property

Once upon a time farms grew crops and reared livestock to feed a grateful nation which knew the dangers of hunger. Farmers were seen as cheery fellows with a deep-rooted attachment to the land, happy with their lot as cultivators and custodians of a strong rural heritage. The job of the agricultural valuer was to advise on the sale and purchase of farms and rural estates, to undertake the annual stocktaking valuation and to see tenants in and out of their tenancies with the myriad calculations which make up a tenant right claim. On one or two days a week the valuer might act as auctioneer in the local mart, and of course would also arrange the special sales of machinery, livestock and implements (deadstock) which would accompany a change in farm occupancy. On hand to provide a broad range of practical advice, the valuer would also deal with the occasional incursion from a new road or pipeline, arrange building work, insurance valuations for the larger estates and claim grants from a generous Ministry of Agriculture.

Now all that has changed. In recent years the farmer began to doubt whether anybody wanted the produce over which so much labour and care was expended and his role as custodian of the countryside has been increasingly questioned. In short, no longer a cheery fellow at all in many cases. Meanwhile, the number of traditional tenancies has declined. Land has been purchased by a new breed of ‘lifestyle’ buyer. The production of food is no longer the priority and we have forgotten the dangers of hunger. Farms have diversified, with some now resembling a small business development located in a country park. The Ministry of Agriculture is no more, and public administration of the countryside is in the hands of a plethora of public bodies most notably the Department of Environment, Food and Rural Affairs (DEFRA). Harvest festivals cling on, but another annual highlight of the agricultural calendar is the May submission of paperwork to the Rural Payments Agency of DEFRA in order to claim the Single Farm Payment for the maintenance of land on the Rural Land Register in Good Agricultural and Environmental Condition. ‘Serious’ farming can still be encountered, but it too has changed to an epic industrial scale driven by the quality and environmental imperatives of the major supermarkets.

The work of the agricultural valuer has therefore changed too. Rural surveying firms were among the first to offer brokerage services for milk quotas in the mid 1980s, and they were among the foremost professional groups in helping farmers to cope with the introduction of Arable Area Payments, set-aside, sheep and suckler cow quotas, and IACS — the Integrated Administration and Control System — after the McSharry reforms of the Common Agricultural Policy in 1992. The implementation of the mid-term review of the Common Agricultural Policy in the last two years has been the latest episode this story of increasing complexity in agricultural and rural administration. Professional advice has been needed on the introduction of the Rural Land Register, eligibility for the Single Payment Scheme and historic based entitlements and the annual claims for Single Farm Payment. These changes have also added to the assets that must be appraised by the agricultural valuer: first milk quota, then quotas for sheep and suckler cows before their withdrawal two years ago, and now historic entitlement to Single Farm Payment. Alongside the agricultural revolution of the last decade, there have also been notable changes in the valuation requirements of taxation — Inheritance Tax and its impact on farmhouses in particular. The latest proposals for a Planning Gain Supplement seem likely to be one of the next challenges to agricultural valuers by 2009, in particular the need for ‘current use valuations’ of redundant agricultural assets which ignore prospects for future development in the form of hope value.

Against this turbulent background, this chapter revisits the fundamental aspects of any agricultural valuation. This covers the qualifications and experience of the valuer, the requirements of a physical inspection of a farm or estate, the desk research which must be undertaken for a complete valuation of a farm, and sources of information with which the valuer should be familiar. The chapter then goes on to look at some more specialised examples of the agricultural valuer’s current work.

The fundamentals

The valuer

The RICS (Royal Institution of Chartered Surveyors) lays down requirements for the education and training of its members, ensuring that they acquire appropriate practical experience and keep their professional knowledge up to date. The Red Book (RICS Valuation Standards) applies to virtually all written valuations and it is considered best practice to follow its requirements. All this ensures that the valuer understands his task, has the confidence borne of experience and is subject to stringent professional regulation. The valuation of agricultural assets is no exception, and most practising valuers will therefore be members of the RICS, and in particular its Rural Faculty.

In addition to RICS membership, many agricultural valuers in England and Wales also belong to the Central Association of Agricultural Valuers and its local branches. This association provides its members with highly focussed technical material, as well as arranging a lively series of local professional meetings, and membership is highly valued by its members. CAAV, like the RICS, also sets a series of rigorous examinations for new entrants. Members can be recognised by the designation FAAV (Fellow of the Association of Agricultural Valuers) after their names. Publications in recent years have covered the emerging changes in the Common Agricultural Policy, changes to agricultural tenancy law and the conduct of rent reviews of farms. Student and probationer membership is available to those wishing to qualify, and anybody with a serious interest in the subject of rural valuation should look into membership.

Like any other valuer, the agricultural valuer needs to be familiar with the five traditional methods of valuation. Although direct comparison is the mainstay of the rural valuer’s work, different rural assets may need the investment, residual, profits or depreciated replacement cost methods. Let commercial conversions, barns for redevelopment, specialised leisure enterprises and specialised agricultural buildings would, respectively, all draw on these methods. There has also been a greater acceptance of discounted cash flow approaches in recent years, although more with a view to investment appraisal than the preparation of market valuations. These trends seem likely to continue as the rural economy becomes more diverse. The valuer also needs a sound appreciation of husbandry, forestry and rural construction, as well as a good understanding of the planning system and the increasingly complicated requirements of rural land administration. A good understanding of all forms of tenancy, residential, commercial and agricultural, is also a pre-requisite.

The Red Book includes an Information Paper on ‘Rural Property Valuation’ (Valuation Information Paper 5), and clearly the valuer should be acquainted with its contents which are reflected later in this chapter.

The purpose of the valuation

Farms have to be valued for the usual range of reasons: sale and purchase, taxation, compensation on compulsory purchase, loan security are all common examples. Sadly, valuations are also required in connection with divorce settlements, business partnership dissolution, and for probate and taxation purposes following death. Clearly, considerable sensitivity needs to be exhibited by the valuer faced with some of these situations.

The physical inspection

A comprehensive physical inspection of a farm of any size may take at least several hours, and possibly a lot longer. The valuer will need to be equipped with boots and waterproofs as well as the usual notebooks, recorders, digital camera, tape or laser measure and binoculars. A digital camera is a particularly helpful instrument for a farm inspection. Hygiene precautions — nowadays called biosecurity — have become important again, and the valuer should ensure that clothing, particularly footwear, is scrupulously clean. Clean overalls can be an excellent idea, and on high health status units the valuer should expect to wear boots and overalls provided by the farmer.

It is always helpful to spend some time talking to the current farmer at the start of an inspection, and to note down any information he is willing to share about current stocking and cropping on the farm, houses and cottages, current workforce, eligibility for the Single Payment Scheme, occupation details, participation in environmental or other schemes. This may also be an opportunity to check the existence of any statutory designations which might affect the farm, for example part of the holding may be notified as a Site of Special Scientific Interest, by Natural England, which has recently taken over the functions formerly exercised by its predecessor English Nature. The valuer is likely to be aware of wider designations such as National Park or Area of Outstanding Natural Beauty status from his general knowledge of the area. An important recent development has been the designation of certain areas as ‘Open Access’ land under the Countryside and Rights of Way Act, over which the so-called right to roam operates. This information can subsequently be verified from the maps published by Natural England, previously by the Countryside Agency. It is important that the valuer should try to form a clear impression of the farm or other business activity taking place, and these data will help to form a professional view on the standard of management of the farm.

In particular, details of all houses and cottages should be noted in the normal way for any residential property. It is helpful to note as much detail as possible about the current occupiers of all residential property, particularly where security of tenure may be an issue. Similar details will also be needed for other buildings, where current use should also be noted and in particular any signs of non-agricultural occupancy or use. The presence of asbestos may be an issue in some farm buildings, and the valuer should be alert to this danger. When appraising the suitability of farm buildings, the valuer should bring a knowledge of the requirements of modern agricultural production to the task. For example, is there adequate storage for waste on a dairy farm (slurry from the cows, washings from the dairy, silage effluent, soiled bedding) and does an arable farm have adequate grain storage against the requirements of modern quality assurance schemes for the marketing of combinable crops (wheat, barley)? Grain stores should be protected against vermin and birds, and lights should be designed so that broken glass cannot fall into the stored grain. Shortfalls should be clearly noted.

A thorough inspection will include an assessment of each field on the holding. Its soil type, current use, access, condition of fences or hedges, availability of water may also need to be noted. Slope and aspect are also important considerations, with gently sloping fields of a south to southwesterly aspect often being the ideal. For some valuations, in particular those needed at the end of a tenancy, it may also be necessary to gather data about recent fertiliser, lime and FYM (farmyard manure) and slurry applications. It is also important to look ...