Anyone who has bought or sold property knows that establishing its value isn’t always straightforward. Two similar houses on the same street can sell for surprisingly different amounts, while commercial properties can vary considerably in value depending on their location, condition, rental income and lease arrangements.
For self-managed super funds that own property, this presents an annual accounting challenge. Trustees need to report their assets at market value, but unlike listed shares, property doesn’t have a readily available market price that can simply be entered into the accounts.
The figure needs to be supported by evidence, and that evidence must be sufficient for an independent auditor to assess whether the valuation is reasonable. During an SMSF audit, questions about property values can therefore arise even when trustees are confident that their estimate accurately reflects the market.
What Makes a Property Valuation Reliable?
A trustee might have a good understanding of their property’s value, particularly if they’ve owned it for many years and regularly monitor local sales. However, personal knowledge of the market isn’t necessarily enough to support the amount recorded in the fund’s financial statements.
The Australian Taxation Office provides guidance on valuing SMSF assets, explaining that valuations should follow a fair and reasonable process supported by objective information.
For residential property, this might involve examining recent sales of comparable homes, obtaining an appraisal from a real estate agent or commissioning an independent valuation. Commercial property can require additional consideration, including rental arrangements, occupancy levels and the characteristics of the building itself.
A formal valuation from a qualified valuer isn’t necessarily required every year. What matters is whether the available evidence provides reasonable support for the market value being reported.
There’s also a difference between collecting property sales data and explaining why it supports a particular valuation. If a trustee submits details of three nearby properties that sold for $900,000, those transactions might appear to justify a similar value for their own property. But what if those buildings were recently renovated, had larger floor areas or were situated on more desirable blocks?
These differences could materially affect the comparison. Providing some context around the properties selected helps establish whether they offer a reasonable indication of market value.
An Old Valuation Isn’t Always Enough
One issue that can arise during SMSF audits is the continued use of valuations obtained several years earlier. A trustee may have commissioned a professional valuation when the property was purchased and assume that the figure remains appropriate unless something significant changes.
Property markets don’t necessarily behave that way. Local demand, interest rates, development activity and changes to the property itself can all influence its value over time.
An older valuation can still provide useful background information, but the fund needs sufficient current evidence to support the amount included in the financial statements. Even if the trustee believes the property’s value hasn’t changed, there should be a reasonable basis for that conclusion.
Accountants should also check that the evidence relates to the correct property and ownership interest. This is particularly relevant when an SMSF owns multiple units, separate titles or only a partial interest in a property. A valuation that doesn’t clearly identify what’s being assessed can create unnecessary questions during the audit.
Why Auditors Sometimes Request More Information
Receiving a request for further valuation evidence doesn’t necessarily mean the auditor disagrees with the amount recorded. Often, the problem is simply that the documents provided don’t explain how the trustee arrived at the figure.
For example, an accountant might submit a letter from a local real estate agent stating that a commercial property is worth approximately $1.5 million. If the letter doesn’t explain the basis of the estimate, identify the property clearly or indicate when the assessment was made, the auditor may need additional information before relying on it.
The auditor’s responsibility is to assess the evidence, not to decide what value would be most convenient for completing the accounts. Where the supporting information is unclear or inconsistent, further investigation may be necessary.
This is also why it’s worth addressing valuation questions during the preparation stage rather than leaving everything until the audit begins. Accountants can check whether the documents are current, whether the property details are correct and whether the evidence provides a reasonable explanation for the reported value.
If different sources suggest substantially different amounts, the discrepancy deserves attention. An appraisal from one agent might differ from another, particularly where few comparable properties have sold recently. The important thing is to understand why those differences exist and document how the final valuation was determined.
Keeping that information with the fund’s accounting records gives the auditor a clearer basis for assessing the figure. It also creates a useful history for future years, when another accountant or auditor may need to understand how the property’s value was established and what information was considered at the time.
