TEGoVA

The European Group ofValuers Associations

www.tegova.org

About TEGoVAThe European Group of Valuers Associations (TEGoVA)

- is the European umbrella organisation of national property valuation associations

- was established in 1977 by valuation associations from Belgium, Germany, France Great Britain andIreland in order to establish common valuation standards in accordance with the 4th companydirective law

Members

Today TEGoVA represents the interests of 40 professional associations from 27 countries with a total of 100.000professional valuers.

TEGoVA’s RoleThe European Union is integrating rapidly, removing barriers

and creating links between more and more citizens and states.

Real estate is the bedrock of the European economy,

- through housing

- through ever-adapting accommodation for businesses and industry

- through public economy and

- as an asset class.

TEGoVA’s Role

A dynamic European economy serving its citizens needs cross-border property investment. To invest in property, people need to be able to compare. Valuation is at the heart of this, as essential to transparency and comparison as the euro itself. Properties across the Union need to be valued on the basis of common European standards applied by valuers with a common high level of competence and integrity

TEGoVA’s Role

TEGoVA organises and achieves this

- by drafting European Valuation Standards (EVS),

- through its systems of approval of valuer certification bodies according to EN 45013 and ISO 17024,

- through it’s system of professional recognition and

- through its minimum education requirements andcorporate governance rules for valuers.

TEGoVA’s RoleHeadquartered in Brussels, TEGoVA is positioned to collaborate with the European authorities as they draft the European Internal Market legislation affecting real estate and valuation in the Union and beyond.

TEGoVA Secretariat

Place de la Vieille Halle aux Blés 28

1000 Brussels Belgium

EVS 2003 (the blue book)The Fifth Edition

The fifth edition of European Valuation Standards 2003 breaks new ground by including material on valuations for securitisation purposes, the effect of market shock, corporate governance and much expanded sections of the valuation of agricultural properties. The section on country-specific matters has also been greatly expanded to cover most member countries.

EVS 2003 (the blue book)The Purpose

EVS 2003 provides a benchmark against which consistent and coherent reports can be prepared for clients, compatible with international practice international accounting standards and European Legislation.

EVS 2003 (the blue book)

The Structure

The book comprises Standards, Guidance Notes and Appendices.Standards are concerned with fundamental valuation principles, and Guidance Notes are concerned with interpretation and application of those principles.Appendices give further assistance in the interpretation and application process.

EVS 2003 (the blue book)The blue book contains nine current European standards, 14 guidelines and eight appendices. New guidance notes have recently been introduced on: • The valuation of mortgage portfolios for

securitisation purposes,• Reflecting market shock, and • Amended appendices on valuation

methodology and corporate governance.

Amended guidelines can be found concerning:• The valuation of agricultural property for

lending purposes • Business valuations • Country-specific legislation and practice

EVS 2003 (the blue book)

The Nine Standards

Standard 1: Compliance Issues International StandardsEuropean Directives and National Law And Practice Derogation from European Standards

EVS 2003 (the blue book)Standard 2: The Qualified Valuer European Accreditation, Mutual Recognition, Local Regulation and Licensing. The Qualified Valuer - definition, competence, and qualifications and relations with the Client.Independence of valuers The Qualified Valuer's relationship with the AuditorProfessional Code:- Certification - Qualification - Probity - Acknowledgement of outside assistance - Conflicts of interest - Support and promulgation of standards set out by- TEGoVA and IVSC

EVS 2003 (the blue book)Standard 3: Conditions of EngagementThe importance of clear and unambiguous conditions in writing;Summary of what should be included in the conditions of engagement;Special considerations in the following circumstances:- Valuations carried out with limited

information - Valuations which are inconsistent with the

Standards - Reviewing valuations by other parties - Sub-contracted valuations *- Valuations passed to a third party

EVS 2003 (the blue book)Standard 4: Valuation Bases Valuation principles and reporting practice The purpose of valuation and uniform bases of valuation Market Value Market Rental Value EU Market Value Highest and Best Use valueFair Value Existing Use Value Value in Use Alternative Use Value Negative Values Depreciated Replacement Cost Mortgage Lending Value Enterprise Value Equity Value

EVS 2003 (the blue book)Standard 5: Valuations for the purpose of Financial ReportingBackground Classification of Assets The Selection of Consistent Bases of Valuation Definitions Apportionment between Land and Buildings Disclosure Provisions Methodology under EC Directive 91/647/EEC Special Properties

EVS 2003 (the blue book)Standard 6: Valuations for Bank Security Purposes and in relation to the Issue of Asset and/or Mortgage Backed SecuritiesThe importance of consistent valuation across the European Union The valuation basis Market Value Mortgage Lending Value Special fiduciary responsibilities and obligations of a valuer The independence of the valuer Specialist knowledge Conditions of EngagementInvestment Properties Owner occupied properties Development properties Properties usually valued on the basis of their trading potential Wasting assets Forced sale value, or liquidation value

EVS 2003 (the blue book)Standard 7: Estimates, forecasts and other appraisals The Concept of Worth (or Value in Use) - Investment Value Replacement Valuation Value in Use Forced Sale Value

Bricks and Mortar Valuations Forecasts Retrospective Valuations Valuation ReviewsOther Bases of Appraisal

EVS 2003 (the blue book)Standard 8: Valuations for Investment - Insurance Companies, Property Unit Trust, and Pension Funds, etc The EC Directive on the annual and consolidated accounts of insurance undertakings; The EU definition of Market Value;Categories of property; Reporting Practice; Transaction costs; The Qualified Valuer (Summary of parts of Standard 2;)Independence and conflicts of interest; Departure provisions; The Valuation Certificate; Methodology.

EVS 2003 (the blue book)Standard 9: Valuation Reporting The form of certificate used The contents of the certificate, including: The instructions, time period, identification, basis of valuation, compliance statement, condition of the property, environmental issues, risk assessment, valuation schedules, the treatment of process plant and machinery, the currency or currencies in which the valuations are to be reported, publication and confidentiality clauses, third party liability, taxation, financial liabilities, model clauses for the valuation certificate Model Clauses

EVS 2003 (the blue book)14 Guidance NotesGuidance Note 1: Special Factors affecting Value

Guidance Note 2: Valuations of Special Properties

Guidance Note 3: Valuation of Plant and Machinery

Guidance Note 4: Valuations of Assets for Development

Guidance Note 5: Valuations of Agricultural Properties

Guidance Note 6: Valuation of Historical Properties

Guidance Note 7: Business Valuations

Guidance Note 8: Valuations of Intangible Assets

Guidance Note 9: Valuations for real estate indices

Guidance Note 10: Cross-Border Valuations

Guidance Note 11: Valuations for Joint Ventures, and Limited Partnerships

Guidance Note 12: Apportionment between Land and Buildings

Guidance Note 13: Country-Specific Legislation and Practice

Guidance Note 14: Valuation of Mortgage Portfolios for securitisation Purposes

EVS 2003 (the blue book)8 Appendices

Appendix 1: Valuation MethodologyAppendix 2: CertificationAppendix 3: Reviewing ValuationsAppendix 4: EthicsAppendix 5: Model Conditions of Engagement and Valuation Check ListAppendix 6: European Code of Measuring PracticeAppendix 7: Glossary of terms used in valuation and related subjectsAppendix 8: List of TEGoVA members

EVS 2006 - sixth Edition

New Structure to be presented at the General Assembly

November 2005, Vienna

Transparency in Property Valuation Through Cross-Border Harmonisation of Valuers‘ Qualification

MethodsQualification of

the user

Transparency in Property Valuation Through Cross-Border Harmonisation of Valuers‘ Qualification

Certification 'Approved by TEGoVA’Certification bodies that have been accredited by a national accreditation body according to EN 45013/ISO 17024 and fulfil certain criteria set by TEGoVA can obtain a mark of excellence 'Approved by TEGoVA'

Professional Recognition

MER - Minimum Educational Requirements

European Property and Market RatingA Valuer‘s Guide

Property and Market Rating is a versatile instrument for assessing the quality of property, or the risk related to the investment in property rights.

As a result of the requirements emanating from the secondconsultative paper of the Basel Committee on Banking Supervision for rating systems determining minimum capital requirements of banks, TEGoVA has decided to create an instrument for a quality assessment of property rights.

PROPERTY AND MARKET RATING

Procedure for assessing the quality or risk related to the investment in property rights

under consideration of the existing use(Rating for completed or existing real estate) PROJECT RATING

Procedure for assessing the quality or risk related to the investment in property

rights under consideration of an alternative use

(Rating for projects)

European Property and Market RatingA Valuer‘s Guide

Fields of application of PaM- Risk analysis of portfolios for securitisation purposes- Property analysis in the context of investment and disinvestment decisions- Portfolio analysis and control- Loan analysis in the process of granting property loans- The rating can be required by the Internal Ratings Advanced Approach

according to Basel II

European Property and Market RatingA Valuer‘s Guide

Rating ScaleThe property and market rating employs a scale following the pattern used by rating agencies and internal rating scales used by banks.It consists of 10 grades, with 1 representing an excellent rating and 10 representing a disastrous one. The average rating is set at 5.

1=excellent; 2=very good; 3= good; 4=slightly above average; 5=average; 6=slightly below average; 7=mediocre; 8=poor; 9 = very poor; 10=disastrous

European Property and Market RatingA Valuer‘s Guide

4 models for Property and Market RatingResidentialRetail OfficesWarehousing, distribution and production

European Property and Market RatingA Valuer‘s Guide

Criteria Classes for the Property and Market Rating are related to- macroeconomic aspects and to the property market

- the location of the propertty

- typological aspects of the property, preservation condition

- the cash flow

European Property and Market RatingA Valuer‘s Guide

Criteria Classes for the Project Rating are related to- macroeconomic aspects and to the property market

- the location of the propertty

- typological aspects of the property

- the cash flow

- legal, tecnical and economic aspects related to the project

Project RatingTo arrive at a rating for projects the sales prospects of the fictitiously completed property have to be rated in a first step, as this represents the exit of the project development.

The second step is to consider as a fifth criteria class the development risks and chances inherent in the project. The rating for the sales prospects of the project as per the rating date will be determined using a matrix that takes into account all possible combinations of the rating for the fictitiously completed property and the rating for the risks and chances of the development.