Valuing Specialised Assets

Most people aren’t aware of how important property valuers are, but they play a crucial role in our financial system. Their judgments on property keep the gears in motion, and their appraisals can impact people's access to funds. But why do valuers’ matter, and why should you care?

 

Put simply; valuation reports give lenders an assessment of the value of the property so that they can determine the appropriate loan amount based on the loan-to-value ratio. Most lenders accept figures reported by an independent valuer, but others may adjust this figure or some lenders even complete in-house valuations. 

 

Ultimately, valuations determine your borrowing power, set your council taxes, and guide how much you pay in land tax. Their work is extremely important to the stability of our financial system and impacts millions of Australians. Only a few months ago, the NSW Valuer General revealed that 1.4 million homes in the Western Sydney region would receive valuation notices. This could result in a 40% increase in value from their last valuation in some cases, resulting in higher land tax and more financial pressure.

 

So, valuers impact headline costs and the lending parameters for borrowers. 

 

Valuations are part of the loan approval process for Australian financial institutions as they indicate a property's suitability as security for a loan. The downstream effect of this is a change in the amount you can borrow based on your LVR. This is the ratio of a loan amount to the overall market value of the property. In doing so, lenders ensure that they aren't lending more than the property's true value and are able to recover the loan amount in the event of property defaults. 

 

While it is a straightforward process for homes, valuers take novel approaches to specialised assets. With going concern valuations, valuers consider the business value as well as land and assets. For 'as is' valuations, you primarily consider land and assets, while the business performance is factored in to judge whether other businesses would perform well on the same site. It takes an investment perspective and, as such, is what private lenders will base their loan approvals off.  

 

Let's say you're a middle-aged hotelier named Andrew, and you want to take out a loan to acquire more land for a hotel expansion. To secure your finance for the acquisition, you'll need a valuation. When appraising the value of hotels, valuers will conduct as performance analysis to ensure the business is operating at industry standards and look at the quality of its fit out and surrounds. Valuers will make a judgment on the quality of rooms, aesthetic appeal of the overall facility, and standards of shared spaces such as lobbies and recreational areas. They consider the revenue generating abilities of its trading components, including food, beverages, accommodation, gaming commissions, and room hire. This gives them a better understanding of the overall profit potential of the business and whether similar businesses could operate with the same effectiveness. 

 

Valuations of property, equipment and plant assets are done with reference to fair value and market value. 

Fair v