Everything You Need to Know About Property Valuation
The concept of real estate includes a wide range of various objects, most of which are either the surface of the earth or are strongly associated with it. The overwhelming majority of immovable objects are determined by the rule: “they cannot be moved in space without causing damage to the integrity or loss of the basic qualities that characterize this object.” However, real estate also includes completely “movable” items, a complete list of which is given in Part 1 of Art.
Without touching on sea vessels and aircraft, which are rarely owned by individuals, we will focus on more pragmatic aspects of real estate appraisal activities – appraisal of land plots and buildings that are most often of interest to citizens.
The task of the assessment is to establish its value. Moreover, the assessment must be objective. This is important not so much for making the transactions made with houses, plots, or apartments, stability, when the agreed value does not change at the whim of the seller, but for meeting the interests of the state. Real estate is one of the proper sources of state budget taxes. Therefore, it is it who is interested in objectively assessing the value for tax purposes. The second factor is the fight against criminal offenses related to the turnover of real estate since the number of crimes is very large.
Types of values for valuation purposes
It is impossible to unequivocally answer the question of how much real estate object costs. The price depends on a number of factors. Therefore, the valuation activity operates with four types of value:
Market value – reflects the balance between supply and demand in the free market. It is used in civil household transactions. It is she who is operated by individuals and legal entities when buying and selling, exchanging, donating—determined by calculation, based on the analysis of prevailing prices for similar immovable objects. From the totality of available data on prices, the “average” is calculated, which can fluctuate upward or downward, but does not deviate from the median by more than 5-10%. Based on the market value, the seller can find out how much he can sell for, and the buyer how much he will have to pay.
Investment value – most often used to calculate the profitability of investments for the construction of a structure, or when purchasing a land plot with the prospect of resale, or building a structure on it that is planned to be sold or leased to tenants. Most often, the investment value is higher than the market value. This is due to the fact that future profit is taken into account when calculating it. If it is equal to the market value or lower, then an unsuitable object for investment has been selected since the costs incurred for its acquisition/improvement will not be recouped and will not bring profit.
Liquidation – the price at which real estate can be quickly disposed of. To determine it, the exposure period is used – 1-2 months, during which the dynamics of the market value is analyzed. Taking into account the circumstances that forced the owner to sell the property, its price can range from 75 to 85% of the market price. It is always below the existing one at the time of the offer.
Cadastral – the value that is operated by state bodies for tax purposes and accounting for the value of the entire volume of real estate included in the USRN and determined on the basis of the state cadastral assessment. This is the most objective cost since it reflects the real costs incurred in the creation of the object (real profit that can be obtained from the intended use of the land plot). For typical objects, it is determined by the method of mass evaluation of objects of the same type, for unique buildings, structures, complexes, natural objects – through an individual assessment.
The legal basis for the implementation of valuation activities as FZ-135. Article 21.2 of this law stipulates that only a person who has a qualification certificate and is a member of an SRO of appraisers has the right to assess real estate. Therefore, before concluding a contract for the appraisal of an apartment, it is necessary to make sure that the person who will perform the appraisal has a certificate and SRO certificate.
After the conclusion of the contract, the appraiser is provided with:
- an identity document (passport) of the owner;
- a document confirming the right to own real estate;
- cadastral passport of the object (technical passport – for an object that is not registered with the USRN, or a certificate from the BTI);
- a technical plan was drawn up in accordance with the requirements of Rosreestr;
- extract of the USRN on the presence of encumbrances (pledge, mortgage, rent, arrest, tax arrears).
Based on the type of object, the appraiser can use assessment techniques:
The result of the evaluator’s activity is the formation of a report. They contain:
- information about the customer and the contractor;
- assessment task;
- description of the object, its characteristics;
- valuation standards used;
- analysis of the market and factors affecting the cost;
- description of the assessment process;
- main conclusions;
- coordination of the results with the customer.
The appraiser’s report is drawn up in the prescribed form.
The validity of the assessment report
The cost, especially the market value, is subject to dynamics. Therefore, once an assessment is made, it loses its relevance over time. Since the costs of the owner for the appraisal of the property are very high, the legislator has established a rule according to which the report is valid for six months.
If the owner does not complete the transaction within the specified period, he will have to order the appraisal again. However, the law allows the extension of the validity of the assessment in cases provided by law. Therefore, it is necessary to clarify with the appraiser whether the subject of appraisal falls under these exemptions.
It is recommended, when concluding an agreement related to the repossession of real estate, to include a pledge clause in the agreement. Having made a deposit, the acquirer, through whose fault the transaction did not take place or was not completed, will have to wait for a re-evaluation or bear the cost of paying for it.