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EQC Valuations Made Easy?
5 May 2009
This article is linked with information provided by The Earthquake Commission (EQC) and focuses on the valuer's role in undertaking valuation assessments of land affected by landslip under the Earthquake Commission Act 1993 (the Act).
Further information is available on the EQC website, with a good publication as follows: www.eqc.govt.nz/downloads/pdfs/claims-guide.pdf
The Valuer's Role
Valuation instructions for the 'natural disaster' (refer below) are either received directly from an EQC field office set up within an area that has a particularly high number of claims, or from their nominated insurers acting on their behalf. They make an inspection of the landslip in the first instance, instructing further professional bodies as may be required.
Usually an engineer is commissioned in order to provide their opinion as to the cause of the landslip, and determine if there is any further land likely to fail within a 12 month period in particular (land regarded as being at imminent risk of failure). Their report also provides remedies to make good and likely costs, together with providing measurements of the affected areas involved.
It is at this point that a valuer may become involved. Values are then applied to the land area measurements determined and outlined within the engineer's report. Often with cross boundary landslips, determination of the exact boundary is difficult, therefore the insurer may also instruct a survey.
What Requires Valuing?
By and large, the main request of the EQC is determination of the land value for the affected area(s) either evacuated or inundated. Evacuated land is land that has actually failed (on a horizontal basis), i.e. the 'scallop' of the slip within the bank. Inundated land is the land which the debris fell onto. Naturally, the inundated land is almost always larger than evacuated land, as the spill 'expands' onto usually more level land below.
Measurements of areas affected are always undertaken on a horizontal basis, and not on the face area in the case of a relatively steep bank. An example of this is where the face area of a bank affected may equate to say 15 square metres, however on a horizontal basis, or by looking down on it from directly above the slip, the measurement equates to only say 8 square metres.
Indemnity values may also be required for culverts, bridges, or retaining walls that are considered to form a part of the claim. Services including water supply, sewage, gas, electricity, and telephone cables/pipes are also insured (only those within 60 metres of the dwelling or associated buildings).
Definitions under The Act
Natural Disaster
Natural disaster for land includes damage due to earthquake, natural landslip, volcanic eruption, hydrothermal activity, tsunami, fire, storm, or flood.
Residential Land
Limitations of the insured land state that it must be residential, and within 8 metres of the dwelling or buildings that serve the dwelling. Land beyond any such structure(s) is not considered. Also included is the land and supporting land of the main accessway - up to 60 metres from the dwelling or associated buildings.
Secondary to this, land affected by storm or flood will be considered, and further areas of land may be regarded as being at imminent risk of failure.
An area of land equal to the minimum sized allotment within a particular area is adopted as the minimum site area. Should the actual site area be less than this, the actual site area is adopted. In the case of a lifestyle block of say 10 hectares, an area of 4,000 square metres is valued (as the minimum site area).
Land does not include improvements as defined within Section 2 of the Valuation of Land Act 1951.
Valuing the Affected Areas
The initial reaction for most valuers is to provide an assessment for the destroyed land on a 'before and after' basis. You will note above that the definition of land under the act is 'for the area of land that is actually lost or damaged', as opposed to what benefit the area of land may have as a part of the overall land value, thereby rendering the 'before and after' method of valuation incorrect.
The methodology is simple. Firstly, the district plan must be consulted in order to determine the minimum sized allotment permitted within that zone, irrespective of the actual site area of the subject (as previously mentioned). Some district plans have site coverage requirements instead, with no minimum site area stated. In this case, observation of neighbouring sections in terms of general section sizes, will provide reasonable evidence of a reasonable section size that may be adopted.
A value is then adopted for such 'minimum sized allotment' (being the subject property) considering the actual aspects such as sun, views, contours, drive on access, shape factor, etc.
The adopted value is then divided by the adopted minimum sized site area, in order to obtain an overall value per square metre.
Factoring, or a multiple, may then be allowed for. In simple terms, the main building platform provides the highest value to the site, and a multiple of say 1.3 to 1.5 may be adopted for these areas. Equally, a similar multiple may be adopted for the driveway that does provide some recognition to the importance of it.
Given that part of the site has a positive multiple, other parts of the site conversely have a reduced multiple. In this scenario, a bank to the rear of the residence will have a multiple of say 0.5 in order to reflect the unusable nature of it, however it will possibly provide some privacy.
A Working Example
An instruction has been received to undertake valuations of land affected by slip. The property is 1 Ranfurly Shield Place, Wellington, and the owners are Mr & Mrs Holders. Under this scenario, the main building platform is level in contour, however a bank to the rear of the residence (within 8 metres of the residence) has slipped, resulting in an EQC claim having been lodged.
An engineer's report has been received, indicating the following:
| Areas of land damaged: | ||
| 1) | Evacuated land | 5 square metres |
| 2) | Inundated land | 10 square metres |
| Areas of land at imminent risk of further: | ||
| 3) | Evacuation | 4 square metres |
| 4) | Re-inundation | 8 square metres |
| 5) | New inundation | 2 square metres |
Land regarded at imminent risk of failure is land around the slip that will most likely fail within the next 12 month period, unless action is taken. Re-inundated land is the same land area, new inundated land is newer land that may be affected.
The District Plan is consulted, and the minimum site area of subdivision is deemed to be 400 square metres in this instance. The actual site area of 1 Ranfurly Shield Place is 567 square metres, however the 400 square metre site area is adopted.
Land sales within the vicinity indicate land values to be in the $500-$700 per square metre range. After considering all aspects associated with the site, a section value of $240,000 is adopted, breaking down to an overall rate of $600 psm.
The calculations for the above are therefore as follows:
| Adopted Value | |||
| (1) | Evacuated Land: | ||
| 5 m2 @ $600 psm x 0.5 (multiple) | = | $1,500 | |
| (2) | Inundated Land: | ||
| 10 m2 @ $600 psm x 1.35 (multiple) | = | $8,100 | |
| (3) | Land at imminent risk of evacuation: | ||
| 4 m2 @ $600 psm x 0.5 (multiple) | = | $1,200 | |
| (4) | Land at imminent risk of re-inundation: | ||
| 8 m2 x $600 psm x 1.35 (multiple) | = | $6,480 | |
| (5) | Land at imminent risk of new inundation: | ||
| 2 m2 x $600 psm x 1.35 (multiple) | = | $1,620 |
A retaining wall has also been affected, with the face area equating to 5 square metres. The age of this appears to be 20 years old, therefore it is estimated that half of the life of the retaining wall had expired, assuming a reasonable life of say 40 years.
Replacement cost of wall affected $2,500 less 50% depreciation (straight line), equates to a reasonable depreciated replacement cost of $1,250.
More substantial retaining walls may need consideration for engineering and compliance costs/fees.
And finally, the above calculations and information are then reported to the EQC office, with an example of the main front page (excluding the Compliance Statement and Statement of Limiting Conditions) as follows:
| Date | ||
| Our ref: | ||
| The Claims Manager | ||
| Earthquake Commission | ||
| P O Box 311 | ||
| WELLINGTON 6140 | ||
| Dear Sir/Madam | ||
| Land Claim: 1 Ranfurly Shield Place, Wellington (Holders) | ||
| In response to recent instructions, we confirm that the abovementioned property | ||
| has been previously inspected and we summarise our assessment as at the above | ||
| date as follows. All figures are GST inclusive. | ||
| 1a Value of minimum site: | $240,000 | |
| 1b Area of land (minimum sized site): | 400 m2 | |
| 2 Value of 4,000 m2 site where applicable | N/A | |
| 3a Value of land actually evacuated | $1,500 | |
| 3b Area of land actually evacuated | 5 m2 | |
| 3c Value of land actually inundated | $8,100 | |
| 3d Area of land actually inundated | 10 m2 | |
| 4a Indemnity Value of other damaged property | $1,250 | |
| 4b Brief description of property value in 4a and comments: | ||
| As per the engineer's report, a section of the timber retaining wall has failed. | ||
| The above areas have been adopted from the engineer's report provided to us, | ||
| and dated 29 April 2009. There is further land regarded as being at imminent | ||
| risk of failure, outlined as follows: | ||
| Land at imminent risk of evacuation | 4 m2 | $1,200 |
| Land at imminent risk of re-inundation | 8 m2 | $6,480 |
| Land at imminent risk of new inundation | 2 m2 | $1,620 |
Jason Lochead
This monthly paper reflects the views of the writer and may not represent the views of all TelferYoung staff.