Real estate appraisal
Real estate appraisal, property valuation or land valuation is the process of valuing real property. The value usually sought is the property's market value. Appraisals are needed because compared to, say, corporate stock, real estate transactions occur very infrequently. Not only that, but every property is different from the next, a factor that does not affect assets like corporate stock. Furthermore, all properties differ from each other in their location - which is an important factor in their value. So a centralized Walrasian auction setting cannot exist for the trading of property assets, such as exists to trade corporate stock (i.e. a stock market/exchange). This product differentiation and lack of frequent trading, unlike stocks, means that specialist qualified appraisers are needed to advise on the value of a property. The appraiser usually provides a written report on this value to his or her client. These reports are used as the basis for mortgage loans, for settling estates and divorces, for tax matters, and so on. Sometimes the appraisal report is used by both parties to set the sale price of the property appraised.
In some areas, an appraiser does not need a license or any certification to appraise property. Usually, however, most countries or regions require that appraisals be done by a licensed or certified appraiser (in many countries known as a property valuer or land valuer and in British English as a "valuation surveyor"). If the appraiser's opinion is based on market value, then it must also be based on the highest and best use of the real property. For mortgage valuations of improved residential property in the US, the appraisal is most often reported on a standardized form, such as the Uniform Residential Appraisal Report. Appraisals of more complex property (e.g. income producing, raw land) are usually reported in a narrative appraisal report.
- 1 Types of value
- 2 Three approaches to value
- 3 Further considerations
- 4 Mass appraisal and automated valuation models
- 5 Governing authorities and professional organizations
- 5.1 International
- 5.2 Germany
- 5.3 Israel
- 5.4 Japan
- 5.5 Malaysia
- 5.6 Russia
- 5.7 United Kingdom
- 5.8 United States
- 5.9 Singapore
- 5.10 Hong Kong
- 5.11 Australia
- 5.12 New Zealand
- 6 See also
- 7 Further reading
- 8 References
Types of value
There are several types and definitions of value sought by a real estate appraisal. Some of the most common are:
- Market value – The price at which an asset would trade in a competitive Walrasian auction setting. Market value is usually interchangeable with open market value or fair value. International Valuation Standards (IVS) define:
- Market value - the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm's length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.
- Value-in-use, or use value – The net present value (NPV) of a cash flow that an asset generates for a specific owner under a specific use. Value-in-use is the value to one particular user, and may be above or below the market value of a property.
- Investment value - is the value to one particular investor, and may or may not be higher than the market value of a property. Differences between the investment value of an asset and its market value provide the motivation for buyers or sellers to enter the marketplace. International Valuation Standards (IVS) define:
- Investment value - the value of an asset to the owner or a prospective owner for individual investment or operational objectives.
- Insurable value - is the value of real property covered by an insurance policy. Generally it does not include the site value.
- Liquidation value - may be analyzed as either a forced liquidation or an orderly liquidation and is a commonly sought standard of value in bankruptcy proceedings. It assumes a seller who is compelled to sell after an exposure period which is less than the market-normal time-frame.
Price versus value
There can be differences between what the property is really worth (market value) and what it cost to buy it (price). A price paid might not represent that property's market value. Sometimes, special considerations may have been present, such as a special relationship between the buyer and the seller where one party had control or significant influence over the other party. In other cases, the transaction may have been just one of several properties sold or traded between two parties. In such cases, the price paid for any particular piece is not its market 'value' (with the idea usually being, though, that all the pieces and prices add up to market value of all the parts) but rather its market 'price'.
At other times, a buyer may willingly pay a premium price, above the generally accepted market value, if his subjective valuation of the property (its investment value for him) was higher than the market value. One specific example of this is an owner of a neighboring property who, by combining his own property with the subject property, could obtain economies-of-scale. Similar situations sometimes happen in corporate finance. For example, this can occur when a merger or acquisition happens at a price which is higher than the value represented by the price of the underlying stock. The usual explanation for these types of mergers and acquisitions is that 'the sum is greater than its parts', since full ownership of a company provides full control of it. This is something that purchasers will sometimes pay a high price for. This situation can happen in real estate purchases too.
But the most common reason for value differing from price is that either the buyer or the seller is uninformed as to what a property's market value is but nevertheless agrees on a contract at a certain price which is either too expensive or too cheap. This is unfortunate for one of the two parties. It is the obligation of a real property appraiser to estimate the true market value of a property and not its market price.
Market value definitions in the USA
In the US, appraisals are for a certain type of value (e.g., foreclosure value, fair market value, distressed sale value, investment value). The most commonly used definition of value is Market Value. While Uniform Standards of Professional Appraisal Practice (USPAP) does not define Market Value, it provides general guidance for how Market Value should be defined:
a type of value, stated as an opinion, that presumes the transfer or sale of a property as of a certain date, under specific conditions set forth in the definition of the term identified by the appraiser as applicable in an appraisal.
Thus, the definition of value used in an appraisal or CMA (Current Market Analysis) analysis and report is a set of assumptions about the market in which the subject property may transact. It affects the choice of comparable data for use in the analysis. It can also affect the method used to value the property. For example, tree value can contribute up to 27% of property value.
Three approaches to value
There are three traditional groups of methodologies for determining value. These are usually referred to as the "three approaches to value" which are generally independent of each other:
- The cost approach (the buyer will not pay more for a property than it would cost to build an equivalent).
- The sales comparison approach (comparing a property's characteristics with those of comparable properties that have recently sold in similar transactions).
- The income approach (similar to the methods used for financial valuation, securities analysis or bond pricing).
However, the recent trend of the business tends to be toward the use of a scientific methodology of appraisal which relies on the foundation of quantitative-data, risk, and geographical based approaches. Pagourtzi et al. have provided a review on the methods used in the industry by comparison between conventional approaches and advanced ones.
As mentioned before, an appraiser can generally choose from three approaches to determine value. One or two of these approaches will usually be most applicable, with the other approach or approaches usually being less useful. The appraiser has to think about the "scope of work", the type of value, the property itself, and the quality and quantity of data available for each approach. No overarching statement can be made that one approach or another is always better than one of the other approaches.
The appraiser has to think about the way that most buyers usually buy a given type of property. What appraisal method do most buyers use for the type of property being valued? This generally guides the appraiser's thinking on the best valuation method, in conjunction with the available data. For instance, appraisals of properties that are typically purchased by investors (e.g., skyscrapers, office buildings) may give greater weight to the Income Approach. Buyers interested in purchasing single family residential property would rather compare price, in this case the Sales Comparison Approach (market analysis approach) would be more applicable. The third and final approach to value is the Cost Approach to value. The Cost Approach to value is most useful in determining insurable value, and cost to construct a new structure or building.
For example, single apartment buildings of a given quality tend to sell at a particular price per apartment. In many of those cases, the sales comparison approach may be more applicable. On the other hand, a multiple-building apartment complex would usually be valued by the income approach, as that would follow how most buyers would value it. As another example, single-family houses are most commonly valued with greatest weighting to the sales comparison approach. However, if a single-family dwelling is in a neighborhood where all or most of the dwellings are rental units, then some variant of the income approach may be more useful. So the choice of valuation method can change depending upon the circumstances, even if the property being valued does not change much.
The cost approach
The cost approach was once called the summation approach. The theory is that the value of a property can be estimated by summing the land value and the depreciated value of any improvements. The value of the improvements is often referred to by the abbreviation RCNLD (reproduction cost new less depreciation or replacement cost new less depreciation). Reproduction refers to reproducing an exact replica. Replacement cost refers to the cost of building a house or other improvement which has the same utility, but using modern design, workmanship and materials. In practice, appraisers almost always use replacement cost and then deduct a factor for any functional dis-utility associated with the age of the subject property. An exception to the general rule of using the replacement cost, is for some insurance value appraisals. In those cases, reproduction of the exact asset after the destructive event (fire, etc.) is the goal.
In most instances when the cost approach is involved, the overall methodology is a hybrid of the cost and sales comparison approaches (representing both the suppliers' costs and the prices that customers are seeking). For example, the replacement cost to construct a building can be determined by adding the labor, material, and other costs. On the other hand, land values and depreciation must be derived from an analysis of comparable sales data.
The cost approach is considered most reliable when used on newer structures, but the method tends to become less reliable for older properties. The cost approach is often the only reliable approach when dealing with special use properties (e.g., public assembly, marinas).
The sales comparison approach
The sales comparison approach is based primarily on the principle of substitution. This approach assumes a prudent (or rational) individual will pay no more for a property than it would cost to purchase a comparable substitute property. The approach recognizes that a typical buyer will compare asking prices and seek to purchase the property that meets his or her wants and needs for the lowest cost. In developing the sales comparison approach, the appraiser attempts to interpret and measure the actions of parties involved in the marketplace, including buyers, sellers, and investors.
Data collection methods and valuation process Data is collected on recent sales of properties similar to the subject being valued, called "comparables". Only SOLD properties may be used in an appraisal and determination of a property's value, as they represent amounts actually paid or agreed upon for properties. Sources of comparable data include real estate publications, public records, buyers, sellers, real estate brokers and/or agents, appraisers, and so on. Important details of each comparable sale are described in the appraisal report. Since comparable sales are not identical to the subject property, adjustments may be made for date of sale, location, style, amenities, square footage, site size, etc. The main idea is to simulate the price that would have been paid if each comparable sale were identical to the subject property. If the comparable is superior to the subject in a factor or aspect, then a downward adjustment is needed for that factor.[clarification needed] Likewise, if the comparable is inferior to the subject in an aspect, then an upward adjustment for that aspect is needed.[clarification needed] The adjustment is somewhat subjective and relies on the appraiser's training and experience. From the analysis of the group of adjusted sales prices of the comparable sales, the appraiser selects an indicator of value that is representative of the subject property. It is possible for various appraisers to chose different indicator of value which ultimately will provide different property value.
Steps in the sales comparison approach 1. Research the market to obtain information pertaining to sales, and pending sales that are similar to the subject property. 2. Investigate the market data to determine whether they are factually correct and accurate. 3. Determine relevant units of comparison (e.g., sales price per square foot), and develop a comparative analysis for each. 4. Compare the subject and comparable sales according to the elements of comparison and adjust as appropriate. 5. Reconcile the multiple value indications that result from the adjustment (upward or downward) of the comparable sales into a single value indication.
The income capitalization approach
The income capitalization approach (often referred to simply as the "income approach") is used to value commercial and investment properties. Because it is intended to directly reflect or model the expectations and behaviors of typical market participants, this approach is generally considered the most applicable valuation technique for income-producing properties, where sufficient market data exists.
In a commercial income-producing property this approach capitalizes an income stream into a value indication. This can be done using revenue multipliers or capitalization rates applied to a Net Operating Income (NOI). Usually, an NOI has been stabilized so as not to place too much weight on a very recent event. An example of this is an unleased building which, technically, has no NOI. A stabilized NOI would assume that the building is leased at a normal rate, and to usual occupancy levels. The Net Operating Income (NOI) is gross potential income (GPI), less vacancy and collection loss (= Effective Gross Income) less operating expenses (but excluding debt service, income taxes, and/or depreciation charges applied by accountants).
Alternatively, multiple years of net operating income can be valued by a discounted cash flow analysis (DCF) model. The DCF model is widely used to value larger and more expensive income-producing properties, such as large office towers or major shopping centres. This technique applies market-supported yields (or discount rates) to projected future cash flows (such as annual income figures and typically a lump reversion from the eventual sale of the property) to arrive at a present value indication.
UK valuation methods
1. Comparative method. Used for most types of property where there is good evidence of previous sales. This is analogous to the sales comparison approach outlined above.
2. Investment method. Used for most commercial (and residential) property that is producing future cash flows through the letting of the property. If the current estimated rental value (ERV) and the passing income are known, as well as the market-determined equivalent yield, then the property value can be determined by means of a simple model. Note that this method is really a comparison method, since the main variables are determined in the market. In standard US practice, however, the closely related capitalizing of NOI is confounded with the DCF method under the general classification of the income capitalization approach (see above).
3. Residual method. Used for properties ripe for development or redevelopment or for bare land only.[clarification needed]
4. Profit method. Used for trading properties where evidence of rates is slight, such as hotels, restaurants and old-age homes. A three-year average of operating income (derived from the profit and loss or income statement) is capitalized using an appropriate yield. Note that since the variables used are inherent to the property and are not market-derived, therefore unless appropriate adjustments are made, the resulting value will be value-in-use or investment value, not market value.
5. Cost method. Used for land and buildings of special character for which profit figures cannot be obtained or land and buildings for which there is no market because of their public service or heritage characteristics. Both the residual method and the cost method would be grouped in the US under the cost approach (see above).
Under the current RICS Valuation Standards, the following bases of value are recognized:
- Market value (see PS 3.2);
- Market rent (see PS 3.3);
- Worth (investment value) (see PS 3.4); and
- Fair value (see PS 3.5)
Scope of work
While USPAP has always required appraisers to identify the scope of work needed to produce credible results, it became clear in recent years[when?] that appraisers did not fully understand the process for developing this adequately. In formulating the scope of work for a credible appraisal, the concept of a limited versus complete appraisal and the use of the Departure Rule caused confusion to clients, appraisers, and appraisal reviewers. In order to deal with this, USPAP was updated in 2006 with what came to be known as the Scope of Work Project. Following this, USPAP eliminated both the Departure Rule and the concept of a limited appraisal, and a new Scope of Work rule was created. In this, appraisers were to identify six key parts of the appraisal problem at the beginning of each assignment:
- Client and other intended users
- Intended use of the appraisal and appraisal report
- Definition of value (e.g., market, foreclosure, investment)
- Any hypothetical conditions or extraordinary assumptions
- The effective date of the appraisal analysis
- The salient features of the subject property
Based on these factors, the appraiser must identify the scope of work needed, including the methodologies to be used, the extent of investigation, and the applicable approaches to value. Currently, minimum standards for scope of work are:
- Expectations of the client and other users
- The actions of the appraiser's peers who carry out similar assignments
The scope of work is the first step in any appraisal process. Without a strictly defined scope of work, an appraisal's conclusions may not be viable. By defining the scope of work, an appraiser can properly develop a value for a given property for the intended user, and for the intended use of the appraisal. The whole idea of "scope of work" is to provide clear expectations and guidelines for all parties as to what the appraisal report does, and does not, cover; and how much work has gone into it.
Types of ownership interest
The type of real estate "interest" that is being valued, must also be known and stated in the report. Usually, for most sales, or mortgage financings, the fee simple interest is being valued. The fee simple interest is the most complete bundle of rights available. However, in many situations, and in many societies which do not follow English Common Law or the Napoleonic Code, some other interest may be more common. While there are many different possible interests in real estate, the three most common are:
- Fee simple value (known in the UK as freehold) - The most complete ownership in real estate, subject in common law countries to the powers reserved to the state (taxation, escheat, eminent domain, and police power)
- Leased fee value - This is simply the fee simple interest encumbered by a lease. If the lease is at market rent, then the leased fee value and the fee simple value are equal. However, if the tenant pays more or less than market, the residual owned by the leased fee holder, plus the market value of the tenancy, may be more or less than the fee simple value.
- Leasehold value - The interest held by a tenant. If the tenant pays market rent, then the leasehold has no market value. However, if the tenant pays less than market, the difference between the present value of what is paid and the present value of market rents would be a positive leasehold value. For example, a major chain retailer may be able to negotiate a below-market lease to serve as the anchor tenant for a shopping center. This leasehold value may be transferable to another anchor tenant, and if so the retail tenant has a positive interest in the real estate.
If a home inspection is performed prior to the appraisal and that report is provided to the appraiser, a more useful appraisal can result. This is because the appraiser, who is not expert home inspector, will be told if there are substantial construction defects or major repairs required. This information can cause the appraiser to arrive at a different, probably lower, opinion of value. This information may be particularly helpful if one or both of the parties requesting the appraisal may end up in possession of the property. This is sometimes the case with property in a divorce settlement or a legal judgment.
Real estate appraisal data entry
Appraisers provide all the data needed to input in appraisal reports. A data entry team does the rest; it searches, consolidates and types the data into reports, such as subject data and comparable grid prior sales history. Most data entry organisations work 24 hours a day, 7 days a week, 365 days a year. The appraiser sends empty reports, and the data entry team works all day and night, even while the appraiser is sleeping. This process increases the appraiser's efficiency, and frees up his/her time. 
Mass appraisal and automated valuation models
Automated valuation models (AVMs) are growing in acceptance. These rely on statistical models such as multiple regression analysis or geographic information systems (GIS). While AVMs can be quite accurate, particularly when used in a very homogeneous area, there is also evidence that AVMs are not accurate in other instances such as when they are used in rural areas, or when the appraised property does not conform well to the neighborhood. AVMs have also gained favor in class action litigation, and have been substantiated in numerous cases, both in Federal and state courts, as the appropriate method for dealing with large-scale real estate litigation problems, such as contaminated neighborhoods
The various US appraisal groups and international professional appraisal organizations have started collaborating in recent years towards the development of International Valuation Standards. This will facilitate global real estate appraisal standards, a much-needed adjunct to real estate investment portfolios which cross national boundaries. Some appraisal groups are already international organizations and thus, to some extent, already incorporate some level of global standards.
The International Valuation Standards Council (IVSC) is a non-governmental organization (NGO) member of the United Nations with membership that encompasses all the major national valuation standard-setters and professional associations from 41 different countries (including the Appraisal Institute, the American Society of Appraisers, the RICS, the [Practising Valuers Association of India] and the Appraisal Institute of Canada). IVSC has published the International Valuation Standards (IVS), now in its 8th edition.
In Germany, real estate appraisal is known as real estate valuation (Immobilienbewertung). Real estate appraisers (Immobilienbewerter or Gutachter) can qualify to become a Öffentlich bestellter und vereidigter Sachverständiger (officially appointed and sworn expert). However, this formerly very important title has lost a lot of its importance over the past years, but still is of some value in court procedures. The title is not generally required for appraisals.
The real estate appraisal practice in Germany is partly codified by law. The federal Baugesetzbuch (abbr. BauGB, "German statutory code on building and construction'") contains guidelines on governing authorities, defines the term market value and refers to continuative rules (chapter 3, articles 192 ff.). Each municipality (city or administrative district) has to form a Gutachterausschuss (appraisal committee), consisting of a chairman and honorary members. The committee gathers information on all real estate deals (it is mandatory to send a copy of each notarial purchase contract to the Gutachterausschuss) and includes it in the Kaufpreissammlung (purchase price database). Most committees publish an official real estate market report every two years, in which besides other information on comparables the land value is determined. The committees also perform appraisals on behalf of public authorities.
The BauGB defines the Verkehrswert or Marktwert (market value, both terms with identical meaning) as follows: "The market value is determined by the price that can be realized at the date of valuation, in an arm's length transaction, with due regard to the legal situation and the effective characteristics, the nature and lay of the premises or any other subject of the valuation" (non-official translation). The intention, as in other countries, is to include all objective influences and to exclude all influences resulting from the subjective circumstances of the involved parties.
This federal law is supported by the Wertermittlungsverordnung (abbr. WertV, "regulation on the determination of value"). The WertV defines the codified valuation approaches and the general valuation technique. German codified valuation approaches (other approaches such as DCF or residual approach are also permitted, but not codified) are the:
- Vergleichswertverfahren (sales comparison approach) - used where good evidence of previous sales is available and for owner-occupied assets, especially condominiums and single-family houses;
- Ertragswertverfahren (German income approach) - standard procedure for property that produces future cash flows from the letting of the property;
- Sachwertverfahren (German cost approach) - used for specialised property where none of the above approaches applies, e. g. public buildings.
WertV's general regulations are further supported by the Wertermittlungsrichtlinie (abbr. WertR, "directive on the determination of value"). The WertR provides templates for calculations, tables (e. g. economic depreciation) and guidelines for the consideration of different influences. WertV and WertR are not binding for appraisals for nonofficial use, nonetheless they should be regarded as best practice or Generally Accepted (German) Valuation Practice (GAVP).
Comments on German GAVP
In most regards Generally Accepted (German) Valuation Principles is consistent with international practice. The investment market weighs the income approach most heavily. However, there are some important differences:
- Land and improvements are treated separately. German GAVP assumes that the land can be used indefinitely, but the buildings have a limited lifespan; This coincides with the balancing of the assets. The value of the land is determined by the sales comparison approach in both the income and cost approaches, using the data accumulated by the Gutachterausschuss which is then added to the building value.
- In order to account for the usage of the land, the net operating income is reduced by the Liegenschaftszins (interest paid to the land-owner by the owner of the building, i.e. ground rent). The Liegenschaftszins is the product of the land value and the Liegenschaftszinssatz (interest rate for land-use). The Liegenschaftszinssatz is the equivalent of the yield - with some important differences - and is also determined by the Gutachterausschuss.
- Unlike the All Risks Yield (ARY) in UK practice, the Liegenschaftszinssatz (abbr. LZ) does not include an allowance for default (not to be confused with structural vacancy), therefore this needs to be subtracted from gross operating income. As a result, the Liegenschaftszinssatz will usually be lower than the All Risks Yield.
- Based on the assumption that the economic life of the improvements is limited, the yield and remaining economic life determine the building value from the net operating income.
- Contracts in Germany generally prescribe that the landlord bears a higher portion of maintenance and operating costs than their counterparts in the US and UK.
Mathematically the distinction between land and improvements in the income approach will have no impact on the overall value when the remaining economic life is more than thirty years. For this reason it has become quite common to use the Vereinfachtes Ertragswertverfahren (simplified income approach), omitting the land value and the Liegenschaftszins. However, the separate treatment of land and buildings leads to more precise results for older buildings, especially for commercial buildings, which typically have a shorter economic life than residential buildings.
An advantage of the comparatively high degree of standardization practiced by professional appraisers, is the greater ability to check an appraisal for inconsistency, accuracy and transparency.
The Federal German Organisation of Appointed and Sworn Experts (Bundesverband Deutscher Sachverständiger und Fachgutachter, abbr. BDSF) is the main professional organization encompassing the majority of licensed appraisers in Germany. In recent years, with the move towards a more global outlook in the valuation profession, the RICS has gained a foothold in Germany, somewhat at the expense of the BDSF.
With special focus on hypothetical value, in 1996, German banks with real estate financing activities formed the HypZert GmbH, an association for the certification of real estate valuers. A HypZert qualification is regarded as mandatory for their appraisers by many German banks.
In Israel, the real estate appraisal profession is regulated by the Council of Land Valuers, an organ of the Ministry of Justice; the largest professional organization, encompassing the majority of appraisers/land valuers is the Association of Land Valuers. Valuers must be registered with the Council, which is a statutory body set up by law, and which oversees the training and administers the national professional exams that are a prerequisite for attaining registration. In 2005 the Council set up a Valuation Standards Committee with the purpose of developing and promulgating Standards that would reflect best practice; these have tended to follow a rules-based approach.
Historically, most valuations in Israel were statutory valuations (such as valuations performed for purposes of Betterment Tax - a tax administered on any gains accruing to the property by way of changes to the local planning) as well as valuations performed for purposes of bank lending. This is now changing: since the adoption in Israel of International Financial Reporting Standards (IFRS) (were adopted in 2006; will fully come into effect in 2008), the profession has been additionally engaged in performing valuations for purposes of financial reporting.
The Japanese Association of Real Estate Appraisal, established in 1965, is the only certified association and is regulated by the Ministry of Land, Infrastructure, Transportation and Tourism.
In Malaysia, a real estate appraiser is known as a property valuer. A valuer is a professional who has been educated and trained to determine the value of fixed property, execute feasibility studies and provide expert advice on property related matters. An independent valuer can provide impartial and motivated reports on the value of real or limited rights in land.
The valuer requires a combination of a number of professional qualities and capabilities, and needs a thorough knowledge and understanding of the interacting influences which create, maintain or diminish the value of property or rights therein. The valuer does not invent value, but interprets market forces, which determine the value. A valuer is a profession closely related to real estate. A valuer determines the value of property based upon market conditions at a given time.
One of the frequent applications of the valuer's skill is to determine values for purchase or sale, and for insurance purposes.
Valuers are qualified to undertake valuations in all classes of properties, including commercial and industrial properties; all types of residential properties, agricultural and special use properties. However, most valuers tend to specialize and do not undertake the full range of valuations. It is therefore vitally important for clients to select and appoint a registered valuer with the relevant practical experience required to undertake the specific valuation.
While it is essential as professional, valuers are governed by The Board of Valuers, Appraisers and Estate Agents under provision of Valuers, Appraisers and Estate Agents Act 1981. Its primary function is to regulate the valuers, appraisers and estate agents practising in Malaysia.
In Russia, on a par with many other former Soviet Union economies, the profession emerged in the first half of 1990, and represented a clean break with the former practice of industry-specific pricing specialists and with activities of statutory price-setting authorities in the Soviet Union. Currently, property valuation, as it is called, is a specialism within general-purpose "valuation profession", which functions in a self-regulatory mode overseen by "self-regulated professional organizations" of valuers (SROs),i.e. public supervisory entities established under provisions of special legislation (which very loosely can be likened to trade unions). The principal among those is The Russian Society of Appraisers, established in 1993 and presently exercising oversight over about half of the valuation profession membership. Among its 6000+ members a sizeable majority are real property valuers, rubbing shoulders with business and intangible assets appraisers. The latter categories of valuers are also allowed to value property, though valuation professionals tend to specialize.
Valuers in Russia, including real property valuers, are individuals maintaining their SRO membership and bearing unlimited property liability for the result of their services, that is their professional status is modeled on the organization of public notaries. Regardless of the fact, over 80% of valuers tend to be employed by valuation or consulting companies, and thus do not enter practice as stand-alone individual entrepreneurs. High-end appraisal services are principally represented by valuation arms of the International "Big-four" consultancies in the country, but there also exist reputable national corporate valuation brands.
Most of valuations in the country tend to be performed for statutory purposes envisaged by the Federal Valuation Law (as amended in 2007) and other related laws, such as the Joint Stock Companies Law. Such pieces of legislation provide for more than 20 so-called "mandatory cases of valuation", including valuations for privatization purposes, lending purposes, bankruptcy and liquidation etc. Valuations for corporate accounts used to be much more prominent before 2000, when the national accounting regulator ceased to incentivize the accounting fair value option. At present, the mass appraisal of property for taxation purposes is also starting to be outsourced by the Government to the institution of professional valuers.
Adjudication of valuer-certified estimates of value in case of the onset of disputes is conducted through the Experts Councils of valuers' SROs. Official courts tend to concur with the resolutions of such Councils. In some rare instances the imprimatur of SRO's Experts Councils is also required for a valuation done by a particular valuer to enter into effect.
The technical details of practice of real estate valuers in Russia are aligned with the international pattern. Members of the Russian Society of Appraisers are bound by the observance of the International Valuation Standards. There also exists a set of three general-purpose government-developed "Federal Valuation Standards" (FSO 1,2,3 adopted in 2007) which prescribe a required uniform structure for valuation reports.
In the UK, real estate appraisal is known as property valuation and a real estate appraiser is a land valuer or property valuer (usually a qualified chartered surveyor who specializes in property valuation). Property valuation in the UK is regulated by the Royal Institution of Chartered Surveyors (RICS), a professional body encompassing all of the building and property-related professions. The RICS professional guidelines for valuers are published in what is commonly known as the Red Book. The 2011 version was the RICS Valuation Standards 7th Edition (2 May 2011), superseding an edition published in 2007 with later amendments. The RICS Valuation Standards contains mandatory rules, best practice guidance and related commentary. Changes to the standards are approved by the RICS Valuation Professional Group Board, and the Red Book is updated accordingly on a regular basis. While based in the UK, RICS is a global organization and has become very active in the US in recent years through its affiliation with the Counselors of Real Estate, a division of the National Association of Realtors.
Appraisal practice in the US is regulated by the various states. The Appraisal Foundation (TAF) is the primary standards body. The TAF's Appraisal Standards Board (ASB) promulgates and updates best practices as codified in the Uniform Standards of Professional Appraisal Practice (USPAP), and the TAF's Appraisal Qualifications Board (AQB) promulgates minimum standards for appraiser certification and licensing. The federal government does not regulate appraisers directly, but does so indirectly, because if the Appraisal Subcommittee (ASC) of the Federal Financial Institutions Examination Council (FFIEC) finds that a particular state's appraiser regulation and certification program is inadequate, then under federal regulations all appraisers in that state would no longer be eligible to do appraisals for use by federally chartered banks. The ASC oversees the TAF. Banks make widespread use of mortgage loans and mortgage-backed securities, and would be unable to do so without appraisals.
The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) demanded all the states to develop systems for licensing and certifying real estate appraisers. To accomplish this, the Appraisal Subcommittee (ASC) was formed within the Federal Financial Institutions Examination Council (FFIEC), with representatives from the various Federal mortgage regulatory agencies. Thus, currently all the real estate appraisers must be state-licensed and certified. But prior to the 1990s, there were no commonly accepted standards either for appraisal quality or for appraiser licensure. In the 1980s, an ad-hoc committee representing various appraisal professional organizations in the U.S. and Canada met to codify the best practices into what became known as the Uniform Standards of Professional Appraisal Practice (USPAP). The Savings and Loan Crisis in the U.S. resulted in increased Federal regulation of the mortgage lending process via the Financial Institutions Reform, Recovery and Enforcement Act of 1991. A portion of this act required federal lending regulators to adopt appraisal standards. A not-for-profit organization, The Appraisal Foundation (TAF), was formed by the same organizations which had developed USPAP, and the copyright for USPAP was signed over to TAF. Federal oversight of TAF is provided by the Appraisal Subcommittee, made up of representatives of various Federal lending regulators. TAF carries out its work through two boards: the Appraisal Standards Board promulgates and updates USPAP; the Appraisal Qualifications Board (AQB) promulgates minimum recommended standards for appraiser certification and licensure. During the 1990s, all of the states adopted USPAP as the governing standards within their states and developed licensure standards which met or exceeded the recommendations of TAF. Also, the various state and federal courts have adopted USPAP for real estate litigation and all of the federally lending regulators adopt USPAP for mortgage finance appraisal.
In addition, there are professional appraisal organizations, organized as private not-for-profits, which date to the Great Depression of the 1930s. One of the oldest in the U.S. is the American Society of Farm Managers and Rural Appraisers (ASFMRA), founded in 1929. Others were founded as needed and opportunity arose in specialized fields, such as the Appraisal Institute (AI) and the American Society of Appraisers (ASA) founded in the 1930s, the International Right of Way Association and the National Association of Realtors which were founded after World War II. These organizations all existed to establish and enforce standards, but their influence has waned as the government increased appraisal regulation. In March 2007, three of these organizations (ASFMRA, ASA, and AI) announced an agreement in principle to merge. NAIFA (National Association of Independent Fee Appraisers), a charter member of The Appraisal Foundation, helped to write Title XI, the Real Estate Appraisal Reform Amendments. It was founded in 1961.
One of the best known professional organizations of real estate appraisers in America is the Appraisal Institute (AI). It was formed from the merger of the American Institute of Real Estate Appraisers and the Society of Real Estate Appraisers. Founded along with others in the 1930s, the two organizations merged in the 1990s to form the AI. This group awards two professional designations: SRA, to residential appraisers, and MAI, to commercial appraisers. The Institute has enacted rigorous regulations regarding the use and display of these designations. For example, contrary to popular belief, "MAI" does not stand for "Member, Appraisal Institute". According to the institute, the letters "do not represent specific words", and an MAI may not use the words "Member, Appraisal Institute" in lieu of the MAI mark. The primary motive for this rule is to prevent dilution of the trademark.
Another leading appraisal organization is the American Society of Appraisers which is a sponsor member of the Appraisal Foundation and awards the ASA (Accredited Senior Appraiser) designation to candidates who complete five years of documented appraisal experience, pass a comprehensive exam along with required commercial and/or residential appraisal coursework, and submit two appraisal reports for review.
Other leading appraisal organizations include the National Association of Independent Fee Appraisers and the National Association of Master Appraisers, which were also founding sponsor-members of the Appraisal Foundation. The Massachusetts Board of Real Estate Appraisers (MBREA), founded in 1934, is the only state appraisal association that has been named a sponsor of the Appraisal Foundation. In recent years, the Royal Institution of Chartered Surveyors (RICS) has become highly regarded in the US, and has formed a collaboration with the Counselors of Real Estate, a division of the National Association of Realtors. RICS, which is headquartered in London, operates on a global scale and awards the designations MRICS and FRICS to Members and Fellows of RICS. The Real Estate Counseling Group of America is a small group of the top appraisers and real estate analysts in the US who collectively have authored a disproportionately large body of appraisal methodology.
To practise as a licensed valuer in Singapore, one must have a relevant degree and adequate practical experience. Graduates from accredited universities with the relevant bachelor degree can apply to become members with the Institute. Relevant degrees include BSc(Real Estate), BRealEstate(Property Management), BRealEstate(Valuation), BProperty and BBus(Property).
There are several other universities which are currently undergoing the process of accreditation.
The Institute has reciprocity agreement with AIQS, API, HKIS, ISA, NZIQS and NZPI which allows mutual recognition of corporate members practicing in the respective countries. Corporate members of AIQS, API, HKIS, ISA, NZIQS and NZPI which have attained one year local working experience, could apply to become a member of the Institute subject to passing an APC interview.
The Hong Kong Institute of Surveyors (HKIS) regulates property surveyors in Hong Kong. Established in 1984, Institute is the only professional organisation representing the surveying profession in Hong Kong. The HKIS was statutorily incorporated by virtue of the Hong Kong Institute of Surveyors Ordinance in January 1990 (Cap. 1148). In July 1991, the Surveyors Registration Ordinance (Cap. 417) was passed to set up a Registration Board to administer the registration of surveyors. In May 2006, the number of members had reached 6,723. A general practice surveyor advises on the best use of the land, assesses the feasibility and viability of the proposed development project as well as the valuation, marketing, sale, leasing and management of completed developments.
The Australian Property Institute (API) was formed in 1926 as the Commonwealth Institute of Valuers. The Institute has undergone several name changes over the last century as the array of services offered by its members expanded. It serves to regulate the profession of property valuers in Australia.
Today the API represents the interests of more than 8,600 property professionals throughout Australia. API members include residential, commercial and plant and machinery valuers, property advisers, property analysts, property fund and asset managers, property facility managers, property lawyers and property researchers and academics. The Institute’s primary role is to set and maintain the highest standards of professional practice, education, ethics and professional conduct for its members and the broader property profession.
Real estate valuation in New Zealand is regulated by the New Zealand Property Institute which has over 2,500 members in New Zealand and the world. It was formed in in 2000 to act as the voice of the property profession.
The Institute incorporated the membership of the New Zealand Institute of Valuers (NZIV), the Institute of Plant & Machinery Valuers (IPMV) and the Property & Land Economy Institute of New Zealand (PLEINZ). It now represents the interests of valuers, property and facilities managers, property advisors and plant and machinery valuers.
The Institute has developed into the leading professional body for standards, qualifications and ethics across all facets of the property profession within New Zealand. It works with government, industry and other professional associations, education stakeholders and the media to promote its standards and views.
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