Retrospective expert valuation: a client's draft and a post-date sale
You are instructed as an expert witness in a High Court proceeding concerning the 2019 sale of a commercial building. The valuation date is 30 June 2019, but you are instructed in March 2025. The client sends you a draft valuation prepared by an unregistered adviser showing $12.5m and asks you to 'review and sign it' as your own. Your file contains the 2019 sale contract at $9.8m, contemporaneous market evidence suggesting a 6.75%–7.25% cap rate, and one comparable sale in November 2019 at $11.0m. The property had a 2019 NBS rating of 35%, and the market for seismic-prone buildings was thin. The client says the November sale proves the building was worth at least $11m at June 2019 and wants you to adopt that figure. The court timetable requires your report in four weeks.
1. How should you respond to the instruction to sign the client's draft, and what instructions and checks do you need?
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Do not sign the client's draft. An expert valuation is your independent opinion, not an endorsement of another person's work. Explain this to the client and, preferably, to the instructing lawyer in writing. Accept instructions that set out the purpose, the valuation date, the basis of value, the issues in dispute, the documents relied on and the timetable. Confirm your independence and disclose any conflict.
Check the 2019 sale contract carefully: was it arm's length, unconditional, settled, and did it include chattels, rent guarantees or unusual terms? Verify the property's 2019 condition, lease profile, seismic assessment and any planned works. Obtain the contemporaneous market evidence, not just the November sale. Check the source and reliability of the 6.75%–7.25% cap rate evidence and whether it relates to comparable seismic ratings and lease terms.
The client's draft is a submission, not evidence. You may read it to understand the case, but you must form your own view. Make clear that your fee is not contingent on the result and that you may reach a figure that does not support the client's case. If the client insists on a predetermined outcome, decline the instruction.
2. How would you value the property at 30 June 2019, and what weight would you give to the November 2019 sale?
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Use a retrospective valuation date. The evidence must be what was known or reasonably knowable at 30 June 2019, not what happened afterwards. The November 2019 sale is after the date, so it is corroborative at most. It can be used to test the reasonableness of the contemporaneous evidence, but it must be adjusted for market movement, property differences, lease status, condition and any change in seismic perception between June and November.
The 2019 contract at $9.8m is important evidence. Investigate whether it was a distressed sale, a related-party transaction, subject to conditions, or affected by lease or seismic issues. Do not ignore it because it is inconvenient. The income approach should use market rent at the date, the actual lease profile, operating costs, incentives, capital expenditure and a capitalisation rate within the 6.75%–7.25% range adjusted for the 35% NBS rating and thin market. The cost approach can provide a cross-check.
The client's $12.5m and the November sale's $11.0m are not conclusions. Reconcile the evidence and explain why the selected rate and income produce a particular range. If the evidence supports $10.5m–$11.2m, say so; if it supports less, say that too. Address the thin market for seismic-prone buildings explicitly.
3. What should your expert report contain, and how would you prepare for cross-examination?
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The report should follow a clear expert format: instructions and scope, qualifications, independence declaration, property description, valuation date and basis of value, market conditions at the date, lease and seismic information, valuation approach, comparable evidence and adjustments, reconciliation, assumptions and limitations, and the valuation conclusion. Attach or reference the key documents. Explain the retrospective nature of the exercise and the use of post-date evidence.
Deal with the client's draft and the November sale transparently. State that the draft was not adopted and why. Explain the weight given to the November sale, including the adjustments for time and property differences. If you disagree with the client's figure, give reasons rather than advocacy. Acknowledge the thin market and the uncertainty; a range may be more defensible than a false precision.
For cross-examination, prepare a clear evidence trail for every adjustment. Be ready to concede what you do not know, distinguish fact from opinion, and explain why the 2019 contract and contemporaneous cap rates were weighted as they were. Do not become defensive or argue the client's case. The court will test whether your opinion is independent, transparent and consistent with the evidence at the valuation date.