What Is Fair Market Value for Rural Land Sales In Australia?

Fair market property value is a rational and unbiased estimate of the potential market price of an rural land asset. The market value of a property is the price that would be negotiated between a willing buyer and willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently, and without compulsion. The value isn’t the current listing price nor the amount of the most recent offer on the property.  Experienced investors expect to look at standard investment indicators like the percentage of net return on capital. If a property does not make a profit (and therefore no real return in a year) it does not automatically follow that the asset has a nil value. There are many seasonal and other factors which will apply across the Australian rural landscape that influence the return profile in any one year, however these assets will still retain a relative value in the market place.

The definition arises from the Australian compensation case Spencer v The Commonwealth of Australia (1907), 5 CLR 418 in which Griffiths CJ stated:

Bearing in mind that fair market value implies the existence of a willing buyer as well as of a willing seller, some modification of the rule must be made in order to make it applicable to the case of a piece of land which has any unique value. It may be that the land is fit for many purposes, and will in all probability be soon required for some of them, but there may be no one actually willing at the moment to buy it at any price. Still it does not follow that the land has no value. In my judgment the test of value of land is to be determined, not by inquiring what price a man desiring to sell could actually have obtained for it on a given day, i.e., whether there was in fact on that day a willing buyer, but by inquiring, ‘What would a man desiring to buy the land have had to pay for it on that day to a vendor willing to sell it for a fair price but not desirous to sell?’

In order for vendors or property owners who manage livestock production operations, to effectively leverage fair market value in their rural property asset, they must maintain detailed records of stocking rates on a regular basis by livestock class and number in order to demonstrate capability of their asset.

Similarly, vendors or property owners who manage farming enterprises must maintain regular farm crop performance data, seasonal conditions, commodity price fluctuations and location advantages or disadvantages in order to demonstrate capability of their asset.

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David Carter Property and Livestock

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