Insights – the willing buyer test
In 2006, the Property Institute of New Zealand adopted the International Valuation Standards definition of “market value”, which is:
“the estimated amount for which an asset should exchange between a willing buyer and a willing seller in an arm’s-length transaction, after proper marketing, with both parties acting knowledgeably, prudently, and without compulsion”.
This definition is often referred to as the “willing buyer” test and is used to assist in determining the market value of an asset.
In Zichen and Theo’s circumstances, the willing buyer was only willing to pay $21,000, making that amount the market value of the machinery at that time.
What happened?
In February 2022, Zichen and his husband Theo’s business obtained a $240,000 loan to purchase heavy machinery. Zichen and Theo gave a personal guarantee for the loan, and the machinery was provided as security.
In 2024, after being unable to make their payments due to business contracts falling through, Zichen and Theo agreed to surrender the machinery to the lender. The machinery was subsequently sold for $21,000, which was applied to the business’s loan to reduce the outstanding balance.
Zichen and Theo said that the lender had sold the machinery for far less than it was actually worth, leaving them with a substantial amount of remaining debt that they were unable to pay. Zichen said that, had he known that the machinery would be sold for so little, he would have arranged for a friend or family member to buy it instead.
Zichen and Theo complained to FSCL.
What was FSCL’s view?
We found that the lender’s process for selling the machinery was fair, reasonable, and within the bounds of what we would have expected them to do in the circumstances.
The lender confirmed that the machinery had been listed for sale by an independent auctioneer company, and that six separate auctions had been held over a three-month period. The lender ultimately accepted a bid of $21,000 during the sixth auction, which was the highest bid that had been received from all the auctions.
We noted that the lender had told Zichen about the auctions and, had his friends or family wanted to purchase the machinery, they could have attended and placed a bid.
We suggested that Zichen and Theo discontinue their complaint.
What was the outcome of FSCL’s investigation?
Zichen and Theo did not respond to our views. We discontinued our investigation and closed our file.
