CONNECTION BETWEEN VALUATION STANDARDS AND

REAL ESTATE APPRAISAL PROCEDURE

(A COUNTRY BASED APPROACH)

Maile Kajak, consultantColliers International Estonia

Kaarel Sahk, lecturerEstonian University of Life Sciences

June 2010

SUBJECT CHOICE

Quality of valuation reports is very different: In spite the national standardization, no solid

and confidential valuation report form To problematic issues is given too little

attention: no recurrent analysis of problematic issues; the sanctions for poor quality of valuation

reports are too soft; little training level of real estate appraisers

OBJECTIVES OF RESEARCH

To make and clarify a summary of the main mistakes and the deviations from the Estonian Valuation Standards

To give, if it is available proposals for standards

To draw attention and underline the necessary training topics among appraisers

BUILTUP RESEARCH

CASES

ENQUIRY

RESEARCH

AUDITS

Valuation cases processed by the Estonian Association of real Estate Appraisers Total: 82 different cases

The results of audit of certified appraisers Total: 25 audit reports

The results of the questionnaire based on valuation cases and audit results Total: 52 answers

DATA AND METHODOLOGY

RESULTSAnalysis of valuation cases (1)

Distribution of case filers:

Credit Institutions 34%

Insurance Companies

1%

Appraisers4%

Individuals26%

State Institutions21%

Law yers9%

Private Companies6%

RESULTSAnalysis of valuation cases (2)

The main reasons for filing the cases: large difference between valuation

results; low valuation result; mistakes in valuation object

description.

RESULTSAnalysis of valuation cases (3)

Main mistakes: unrealistic assumptions; the appraiser has not considered

the restrictions and lease agreements encumbering the object;

the appraiser has not analysed the highest and best use of the object;

RESULTSAnalysis of valuation cases (4)

Main mistakes: the information about building permits

and certificates of occupancy has not been brought out;

valuators do not often explain why the specific valuation methodology has been implemented;

appraisers mix up capitalization rate and discount rate and the terms value, price and cost

General estimation

"good" 72%

General estimation

"satisfactory" 28%

RESULTSAnalysis of audit results (1)

The main mistakes are similar to valuation cases analysis results

Estimations given to certified appraisers during auditing – “good”, “satisfactory” or “non sufficient”

RESULTS Analysis of questionnaire answers (1)

Distribution of appraisers, who answered to the questionnaire:

no certificate57%

Residential appraiser

12%

General appraiser 31%

RESULTS Analysis of questionnaire answers (2)

Type of a mistake Cases and auditing results

Answers of the questionnaire

Dates of inspection, valuation and value

Appraisers keep mixing up Appraisers don’t understand the difference

The information about building permits, certificates of occupancy and planning

Has not been often brought out

92% of the appraisers brings the information out always,

8% sometimes

Highest and best use analysis

Missing or not thorough enough

Analyzed by most of the appraisers

Economic overview Often missing Included in 88% of the respondents reports

Argumentation of the inputs used in valuation

Often not thorough enough 85% of the respondents justifies the inputs always,

15% sometimes

Difference between capitalization and discount

rate

Appraisers keep mixing up 73% of the respondents understands the difference

The general quality of the valuation reports has improved (EVS have an important role)

Standard mistakes are repeated The national valuation standards

need a review The full paradigm of appraisal

procedure needs to be standardized

Conclusions (1)

FAQ The need for trainings and seminars

on the subjects of valuation like Valuation of special purpose

properties and complex objects legislation, economics and financial topics

CONCLUSIONS (2)

LLL Theoretically knowledge

requirements Previous education and experience

assessment

CONCLUSIONS (3)

Additional information

This presentation is based on the master thesis of Mrs. Kajak “THE QUALITY PROBLEMS OF PROFESSIONAL REAL ESTATE VALUATION IN ESTONIA“

Thesis were defended in December 2009.

Contact adresses for further information:M.Kajak@colliers.ee Kaarel.Sahk@emu.ee

According the current presentation the empirically paper will be copiled.

Thank You for listening!