In recent months, the highly publicised decisions by the High Court and Supreme Court in separate matters, found in favour of ratepayers, where municipalities over estimated – or in one case “thumbsucked’ property valuations, has drawn comment from Dianne de Wet, Professional Valuer with Massel Property Services and President of the South African Institute of Valuers (SAIV).
The two matters concerned Msunduzi (Pietermaritzburg) local municipality in the KwaZulu-Natal Midlands, and Thaba Chweu in Mpumalanga.
While news reports do not always disclose the full facts in the matter and can lead to a distortion of the outcome, justice for the plaintives has been seen to be done. In the Msunduzi matter, the ratepayers did not submit sufficient evidence to support their contention that the properties were overvalued. However, the judgement was particularly scathing of the Appeal Board in that they did not make clear what the requirements were when appealing a value and seemed to make ad hoc rulings. They also, based on evidence given at the hearing, were vague when describing the manner in which outcomes were determined, viz “contingencies” applied in determining the final values. The Municipal Property Rates Act provides guidelines and regulations for the determination of property rates, including specific ratios for different property categories, such as agricultural properties.The Act sets a limit on the ratio at which agricultural properties can be rated, not exceeding 25% of the rates levied on residential properties.
A fair outcome?
Having read the judgements, it is not clear whether the Valuation Appeal Board was involved in the Thaba Chweu Rural Forum matter as the municipality consistently levied illegal rates and acted in conflict with the various laws governing local government and property rates. However, in the Msunduzi matter, the court held that part of the Appeal Board’s function is to determine market value and there is no onus upon an appellant to prove the market value of his property, in fact the onus is on the municipality to prove that a true market value for the subject property has been determined. This could have implications for all municipal valuers when dealing with appeals in future
How were the original valuations conducted?
In both instances, Msunduzi and Thaba Chweu, the valuation roll was outsourced to a service provider following a tender procedure. The problem with this approach is that more often than not, the lowest tender is accepted – whether the work can properly be undertaken for the lowest contract fee or not, is debatable. The lowest bidder in the tender process may not necessarily be the most qualified or experienced service provider. Choosing a service provider solely based on cost can compromise the quality of the valuation work and can impact the true reflection on market values. When outsourcing a valuation roll, a municipality may have limited control over the process and the quality of work delivered by the service provider. This can result in inconsistencies, errors, or inaccuracies in the valuations, potentially leading to unfair property assessments and disputes from ratepayers.
What is the process when undertaking valuations for rates purposes?
The first step is to prepare a market report as at the date of valuation. This is based on rentals, operating costs, sales values, property attributes influencing values, etc., for each homogenous value area within the municipality. The municipal valuer with the assistance of data collectors must collect property attribute data and take photographs. If using statistical regression analysis techniques (mass appraisal), good data should ensure good results. Outliers must always be interrogated to ensure that they are correctly valued and to ensure consistency. Consistency is achieved through good data collection where properties with similar attributes should have similar values.
Statistical regression analysis is essentially an iterative process where a quality assurance is performed repeatedly throughout the process to ensure that the final values align with the information gathered in the market report. Various tests are conducted to confirm the accuracy of the results. These checks will ensure that the results conform to the information gathered for the market report.
It is important when tendering that valuers ensure that they do not quote fees that are too low to create a valuation roll that will withstand public scrutiny and legal review. Municipalities should also be cognisant of how much a properly created valuation roll will cost so that they do not fall into the trap of accepting a bid that is too low.
By Dianne de Wet, President of the South African Institute of Valuers – SAIV