Appraisal Standard 22: the check that protects land buyers

Towards the end of 2014, Standard 22 was approved by the Real Estate Appraisers Council at the Ministry of Justice. The purpose of the standard is to regulate the degree of diligence required regarding information on the potential release of agricultural land – or other land that has not been released for building – before it is sold to end customers. As the standard sets out, when marketing land that is not approved for building, a real estate appraiser must first assess the current value of the land and then assess its value on the basis of the approved plans that apply to it, detailing the processes up to the approval of the plan to release the land.

Standard 22 was designed specifically to protect the public buying agricultural land from any form of deceptive or high-pressure advertising strategy. Its main purpose is to ensure that the interests of agricultural-land buyers are always protected.

Why is Standard 22 so important?

Before the standard was established, it was common for land to be marketed to the public with false promises that it would soon be rezoned for residential or commercial use. These campaigns were designed to make the land look like an irresistible investment opportunity that would yield huge profits in the near future. As a result, land was sold at inflated prices, far higher than its actual value under the existing planning regulations. Unfortunately, many marketers and various companies failed to provide buyers with adequate information about the planning status and true value of the land. This prevented them from making informed decisions about the likelihood of the land being rezoned and the risks involved in the deal. As a result, many buyers suffered significant losses from failed transactions. Standard 22 of the appraisers’ code seeks to address this by giving prospective buyers the tools they need to obtain comprehensive information about the land in question, allowing them to make informed decisions before committing to a deal.

What exactly does Standard 22 of the appraisers’ code cover?

The purpose of Standard 22 is to set the minimum threshold of information that must be included, as well as the criteria for disclosing that information, in the process of carrying out a real estate appraisal for land classified as being marketed to the public on the basis of estimated expectations.

• Under the appraisers’ standard, when carrying out an appraisal in Situation A, the appraiser is responsible for first assessing the land according to its current planning status. This assessment must be in line with the approved plans that apply specifically to the land in question, and must be done on the assumption that the promised arrangement will not receive approval and will not come to fruition.
• When carrying out an appraisal in Situation B, which is based on the assumption that a plan for building on the land will be approved in the future, it is crucial for the appraiser to detail the basis of their information regarding the potential change in the land’s designation. The appraiser must make informed working assumptions that take into account not only the change of designation but also any future planning of the land. Ultimately, the appraiser will set a value for the land on the basis of these factors.
• The appraiser is tasked with presenting a comprehensive description of the existing planning situation, covering every plan relevant to the property. This includes approved plans as well as plans that have been deposited and those due to be deposited. Furthermore, if the appraiser becomes aware of planning decisions made by an authoritative body that could affect the property, this information must also be included in the appraisal report.
• When assessing a programmatic planning situation “based on an assumption”, the appraiser is responsible for thoroughly examining and describing the plan proposed by the party marketing the land. If this plan does not comply with the guidelines set out in an approved plan, the appraiser must identify and detail any conflict between the proposed plan and the existing one, while giving a professional opinion on the feasibility of incorporating the proposed plan into the planning process. If the appraiser determines that the plan is likely to be approved, they must document all the steps and processes that will need to be carried out by the planning committees and the relevant bodies – including an assessment of the likelihood, the duration and the costs involved in implementing the required approval procedures.
• If the plan’s feasibility is low, no assumption-based assessment will be carried out. If the appraiser believes there is no chance the proposed plan will be fully realised, they must give an explanation and refrain from setting a theoretical value (Situation B).