The Australian Property Institute explored the risks involved in performing development valuations, with a seminar present by Sparke Helmore Lawyers consultant Lindsay Joyce.

Find a breakdown of the 14 biggest problems professional valuers might encounter with developments from the presentation or download the PDF at the bottom of this article for a deeper analysis.

Issues for consideration when undertaking development valuations:

1. Pre-sales – key to the approval by a lender for a development site loan (refer also to issues arising from Provident Capital v John Virtue (No. 2) [2012] NSW SC 319).

2. Reference to and careful reliance upon previous valuations of the property – cut and pasting be careful.

3. Are there critical conditions precedent to the drawdown of any approval relevant for the valuer’s consideration? Have you sought and obtained relevant finance approval details relevant to the valuation task and beyond the simple wording of a letter of instruction and then discussed these with the lender?

4. The pre-sale figures versus the market value – your investigations might reveal “secret” rebating agreements or trade in non-currency (“trade dollars”). Is there true authenticity in the contracts for sale including payment of and holding of proper deposits?

A clear warning to solicitors (and others in the transaction) who engage in this type of activity was given by Windeyer J in Miro v Fu Pty Limited [2003] NSWSC 1009 where his Honour said: “I have said this before and I say it again that this type of [rebate] clause is quite improper It can be inserted for no purpose other than to mislead persons such as lending authorities and purchasers of other units in that development”.

Have you seen anything like this?

5. Have construction costs been verified by a QS or subject to a signed building contract? An important qualification should be added to deal with this, especially if a change occurs post valuation.

6. Be aware of possible changes in design being mooted (and likely to occur after the valuation is undertaken).

7. Reliance and disclaimer provisions re ongoing reliance on the valuation for the purpose of the lender making progress construction advances – the three month reliance needs “finality”- on going reliance for costs purposes of a dated valuation cannot occur and why should they?

8. Approval issues and other potential affectations of the development site e.g. flora and fauna, flooding, future rezoning

9. Highest and best use considerations – a need for thorough consideration of the planning issues.

10. So what do you do if you have limited comparable sales evidence in relation to units etc and/or en-globo site sales.

11. Be a conduit for other expert advice incorporated into a report – never use words like “I have no reason to doubt the accuracy and truthfulness of….”

12. Peer review – critical always, even more critical undertaking “dynamic valuations” like development valuations.

13. The importance of sensitivity analyses (this is exactly what lenders’ want) – make these prominent and include as a “warning”.

14. Always “challenge” information/material given to you by a “a person with interest”. presentation here.

Download the entire Funding Property Development into the Future РChallenges for Borrowers and Risks for Valuers  presentation here.