Many clients who have not previously dealt with the property valuation process, even at the stage of the negotiations are still interested: «What is the result of the appraiser’s work?». Or: «What will I get after contacting you?» The question is quite topical, so we decided to devote it a separate material on the site.
Property valuation report
Clients who approach appraisers need the determination of the market value of their property. Most often we are talking about real estate, if it is individuals, and about equipment, if the customer is a legal entity. There are cases when clients, especially permanent, it is enough to simply get oral advice on the cost of a particular object, based on the experience of the appraiser. Such consultations are needed, for example, to determine the market rent for non-residential premises. But most often the customer wants to get a document, which, depending on the purpose of the valuation, he can present to a notary, bank, court, fiscal service, etc.
According to the Law of Ukraine «On Valuation of Property, Property Rights and Professional Valuation Activity» the result of the work of the independent appraiser is valuation report. It is important to know that this is not some certificate of value of the property, as many think. But a small book, the content of which is regulated by law. The general structure of the document is given and briefly described below.
Valuation report structure
Content or table of contents. By the way, not many people understand the difference between the two words. It seems that they are synonymous, but it is not quite so. The term «Content» is usually used in collections of separate unrelated or little related work or materials. Accordingly, the Contents include the titles of these materials as well as their main section. At the same time «Table of contents» is most often used in texts devoted to one particular topic. And it includes all the self-titled sections of the text.
Conclusions on the cost. The main section of any report on the valuation of property. Requirements for drawing conclusions on the value are also regulated by law. Namely in National Standard №1 «General provisions of property and property rights valuation» (Cabinet of Ministers Resolution №1440 of 10.09.2003). The document states that the findings on the value of the assets should include:
- information about customer and appraiser;
- the name of the object whose value is determined and its brief description;
- valuation purpose or function, the document will be used for;
- type of value, which is determinated within this work;
- methodological approaches to determining the cost, which were used in this report (comparative, income, costly or their combination);
- value of the cost, which was calculated during the work;
- appraiser’s comments (in some cases) about the features of the using of the document, clarifying and cautioning against misinterpretation of the results.
The determination of the value of the property from the point of view of the requisitioner is a key element of the valuation report as it contains the output of the work – the value of the property. This report page must contain at least two signatures: from appraiser and the director of the appraisal company. Even if it’s the same face.
The introductory part. It indicates the legal framework on which the work was based. Reference data are provided, main assumptions and assumptions are described. On the basis of a specific valuation situation, an valuation basis is selected, in particular the type of value (most often market value), which will be determined as a result of this work.
Valuation methodology. The main thrust of this section is to justify the application of certain approaches and methodologies to the calculation of value in a given case. Also here is a brief description of the calculation procedure in the above methods.
General characteristics of the object of valuation. This part of the report provides a detailed description of property or property rights as determined by the expert valuation. For example in real estate valuation here has to be describes the location, main structural elements and architectural and planning solutions for buildings and structures in general and the built-in premises in particular.
Analysis of the most effective usage. A very important section of the report, the importance of which is often not fully understood not only by customers, but also by appraisers themselves. But well, the importance of this section in valuation of apartments and other standard objects are really low, and the section is simply formal. But, for example, in valuation of premises it is important to consider and calculate the exploitation of the real estate in such a way that the owner will maximize the profit. For example, there is a room on the facade of the building with significant pedestrian and traffic flows, with display windows and a planning solution that allows to organize a trading hall. It is clear that the maximum yield such property will be when used as a store or office of the open type (trading function). And it is such objects of comparison need to be selected for the calculation of the cost. Even if on the date of evaluation the room is used as, for example, a warehouse.
The calculation part. In addition to the actual calculations here are references to objects of comparison. As well as a description of adjustments that take into account the difference between the property being valued and those being priced as price benchmarks.
Additions.. The last pages of the valuation report are approval documents of appraiser and appraisal company for their professional activities. Usually these are four documents:
- Qualification certificate of the appraiser.
- Extract from the State Property Fund Register.
- Certificate which confirms that a specialist has attended regular refresher courses.
- Appraisal company certificate.
In addition, the additions section provides copies of all documents that were the source data for the calculations. In the case of real estate valuation, these are documents from the customer confirming ownership and technical documentation on the premises. As well as the information collected by the appraiser during the work, in particular the description of objects of comparison, the prices or rental rates of which were analyzed.
What conclusions can be drawn?
Based on the above structure of the report, the following conclusion can be drawn. If an organization offers you some kind of certificate about the market value of the property instead of a full report, you should be careful. First, such an instrument would not have legal force, as it was drafted in violation of the law. Second, for most customers it is important how the value was calculated, based on which objects of comparison and with which methods of calculation. If such information is not available, it is unlikely that the document can serve as an argument in negotiations for the sale or lease of real estate or, even less, in the course of judicial process.