Units of value

The fundamental duty of the rural valuer is to ascertain the market value of subject properties at a specified date. This is carried out only by reference to actual market transactions by the comparison with sales of comparable properties, that is, comparison of subject lands with sales of similar land.

Other methods which can be adopted as a support are:

– capitalisation of rentals

– capitalisation of average net returns 

– capitalisation of hypothetical average net returns.

These methods are rarely satisfactory in practice.

Therefore it is the accepted norm to apply the method of direct comparison as it refers directly to the market. The only source of possible error lies in the assessment of the degree of comparability, which is a physical visual assessment and can be checked by reference to productivity.

In making comparisons and calculations, the valuer must follow accepted guidelines in sales analysis technique and apply such principles as appropriate to the type of rural property being valued or analysed for sales comparison purposes, that is, where there are differences between vineyard, grazing and orchard analysis and so on.

Adopting units of value

It is necessary for the valuer to select and apply the basic unit of value. For example, cleared hectare, grazing sheep area and so on as applicable to the property in question or the comparable sales adopted.

Furthermore, the valuer needs to be aware of variances that may occur in sales and any special circumstances, which may surround sales. Problems of valuation of rural properties occur where they do not conform to the normal.

Comparisons can be effective only when they are made between lands, which are reasonably similar as to location, climate, soils, productivity and general characteristics. It must be realised that it is unusual to find any two properties developed to the same extent and have identical land quality. In making comparisons it is, therefore necessary to allow for adjustments based primarily on production, compatibilities and experience.

The following are example of units of value which the rural valuer could use:

a) Cropping lands

The valuation of lands useable for cropping depends upon the determination of the value of a unit of area, such as the hectare and the multiplication of that value by the number of such hectares contained in the farm. The unit in this case is referred to as the cleared hectare. The cleared hectare is applicable to cultivation and of course is a fixed area cleared for the plough. It varies in quality and soil fertility, situation, aspect and availability of services but is always the same size.

b) Grazing lands

In the case of properties where the land use is solely suitable to the grazing of livestock, the unit of value is referred to as the dry sheep area. The stock areas vary in size and the areas required to support or provide feed for one animal in normal seasons and under normal or average management. The area required to support one dry sheep may be say 0.6 hectare, 0.4 hectare or 0.8 hectare. It can also vary in value because of soil quality, aspect, slope, timber and so on, but the important factor is that the type of country best suited to this type of grazing (that is, wool grazing/sheep breeding) is the only type to which this unit should apply.

c) Other units of value

Sheep area : The number of dry sheep (wethers) which a property will run, on the average, is known as the carrying capacity of that property, and the area necessary to run one dry sheep is known as the sheep area.

In other words, it is an area of land adequately improved (cleared, boundary fenced and watered) which will, on the average, support one sheep or fully grown beef beast per year. It is sometimes referred to as dry sheep equivalent, that is, DSE and is used for grazing country based on an area that can run one dry sheep, that is, a grown wether.

To adopt this unit of value the carrying capacity of the country must be adequately established and is referred to as: $.. per dry sheep area.

Cleared hectare basis CH BFW

This is a hectare of arable land, cleared for the plough and usually includes the value of adequate boundary fending and water. It is referred to as:

$….per Cleared hectare boundary fenced and watered

Note: Boundary Fenced and Watered (bfw) is recommended as the ultimate basis for arable land; however this basis can alter depending on locality and type of enterprise.

Other units of value with specific uses are:

– Beast area cattle, referring to the area of land that can support one beast

– Irrigated hectare refers to irrigation land

– Cow area dairy farms

– Trees orcharding

– Vines wineries

– Sow unit piggeries


Methods of analysis and valuation

Ascertaining and verifying carrying capacity

In valuing rural land suitable for grazing, it is necessary for the valuer to accurately assess the carrying capacity of the particular type of country being valued as well as adopting comparable sales and then carrying capacities.

The expertise with which this is earned out depends on the experience and local knowledge of the valuer. However, certain classes of country is known areas do have an accepted carrying rate Department of Agriculture officers have standard type rates which give a wide margin. However, properties do differ from one another particularly with the class of stock and the management technique.

In verifying carrying capacity it is necessary to be aware of many variables and obtain certain figures.

In obtaining particulars of carrying capacity an endeavour should be made to obtain the figures for as many past years as possible, because, generally speaking, the longer the period involved the truer will be the average.

Examination of books

The valuer can examine the following records to obtain the basic figures in order to determine the capacity:

– Station books
– Shearing tallies
– Details of stock sales and purchases

– Duplicate Income Tax Returns
– Other official records. (Rural Lands Board)
Shearing tallies form a record which, being based on actual count is exact for that period of the year. Care should be exercised to ascertain if the stock numbers at shearing represent a fair average for the year. Sales previous to shearing, the inclusion of sheep from other properties in the tallies, buying and selling throughout the year, may affect the average. Only a thorough investigation of all records, supplemented by inquiry, will enable the true capacity with existing management to be determined.

The next step is to ascertain if the capacity as revealed by the books is the correct capacity. In many cases the capacity as shown by the books may not conform to the capacity possible under average management. A parcel may be consistently overstocked or under stocked, because of the policy of the owner. The presence of large numbers of noxious animals may reduce the feed available for stock.

Furthermore, the grazier may be using some form of supplementary feeding thereby allowing the carrying of more stock than the number which the type of land may normally carry.

Inconsistencies

A subject property may have been consistently under stocked because of the policy of its owner. For example, the property may have been consistently overstocked perhaps due to neglect or rabbit destruction

Overstocking may be indicated by –

– Low output per sheep or beast, in terms of wool, lambs, milk or meat

– High mortality rates, particularly in dry seasons

– The deterioration of pastures.

Low production per unit can, of course, be due to causes other than excessive rates of stocking. The livestock might be of inferior quality or the management may not be good.

Management expertise

The examination of the books and physical inspection of the property should go a long way towards revealing the nature of the management. During the valuation, attention should be directed towards the points detailed below:

– percentage capacity as contrasted with those of similar properties

– nature and condition of improvements. Signs of neglect of both property and stock should be looked for.

– nature and condition of the stock as compared with similar stock in the

district at the time. Notes should be made of any surplus stock carried.

– condition of plant and implements

– presence or absence of pests general condition of pastures

– yield per head of stock

–net return per stock unit

Carrying Capacity (CC)

Once a carrying capacity, in terms of dry sheep equivalents, of a property has been determined, comparing the capacity of the subject parcel with similar properties in the district may reveal differences. These difference need to be investigated and accounted for.

The physical inspection of the subject parcel should have enabled valuers to classify the land. Their knowledge of the district should be such that they are able to estimate a capacity for each class of land, or for each run or paddock. These estimates will be based upon their knowledge of the district and their aggregate will afford a rough check upon the capacity revealed by the books. The number of bales of wool shorn during the years being investigated should be ascertained and the average cut for each type of sheep determined.

Physical factors affecting carrying capacity

Certain physical factors have to be considered when endeavouring to ascertain the carrying capacity of the land, namely:

– Uneven country with poor stony ridges.

– Too little or no shelter through over clearing with the result that the land is windswept.

– It might be capable of carrying stud sheep.

– On the other hand it may be only dry sheep land. Country that could carry 400 ewes would probably carry 600 dry sheep. It is therefore advisable to express the ‘sheep area’ in terms of dry sheep. If the land will only carry sheep for half the year then the carrying capacity is reduced by half as it is feed or ‘eatage units’ that count.

– It may not be winter or breeding country. It may be subject to floods.

– It may have poisonous plants difficult to eradicate or control. If there is infestation look carefully for stony sections and water courses which should be fenced in as they prevent cultivation to control such plants.

– In drift country it might be difficult to fence and maintain such fences with the result that stock management is made extremely difficult  

– It may be seedy country (grass seeds)

– It may be subject to foot rot or other diseases in sheep.