Floods, GFC’s and The Challenges of Valuing Property
Placing a value on your matrimonial property pool is one of the most important and often complex steps involved in negotiating a property settlement.
Recent events such as the GFC and natural disasters both locally and internationally may have an ongoing impact on the valuation of certain assets, particularly business interests, shares and real estate.
If you own a business, (whether it be a small family run retail business or a larger company with numerous employees), or if you own real estate (whether it be your family home or an investment property), you need to be aware of the factors that experts take into account when valuing these assets.
The most obvious impact will be in relation to properties that were affected by the recent floods in Queensland and Victoria or cyclone Yasi. Many spouses are now finding that although their properties may not have been directly affected, they are now located in a ‘flood zone’ with the likely result that the value of their property will decline.
It is important that spouses and their legal representatives provide property valuers with accurate information about how a property was, or was not, affected by these natural disasters.
Businesses and shares in public or private companies may fluctuate as a result of local, national or global events. In particular, in the case of a business that has traded through either the GFC, floods or a cyclone, it is important that careful consideration is given to the valuation methodology used.
A common methodology used by accountants for ‘small to medium’ sized businesses is the Future Maintainable Earnings method. As the name suggests, the method looks at the earnings which can be maintained in the future and takes into account historical operating results and any upward and downward trends. If your industry was genuinely affected by the GFC, giving consideration to earnings between 2008 – 2010 may not provide a true reflection of the value of the business. It may be more appropriate for an Accountant, in valuing the business, to consider results pre GFC along with industry projections and other factors.
It is important that business owners are aware of their financial records and what genuine affect the GFC and/or any recent natural disasters have had on their operations and earnings for the relevant period.