PROPERTY VALUATION PROCEDURE

means expressing an opinion regarding the value of real estate on the basis of the correct use of methods and techniques required for professionally and ethically correct evaluation of real estate.

The valuer collects all available data on the subject property and conducts an inspection, on the basis of which he determines the physical condition of the property and verifies the compliance of the data obtained. The valuer then conducts a market analysis and obtains market data of comparable sales (and/or rental) transactions with similar properties. The next step is the selection of the most appropriate valuation approach (Market approach, Income approach or Cost approach) and the final reconciliation of the value of the subject property. For each valuation, the valuer prepares a valuation report, the content of which is specified in the valuation standards.

INTENDED USE

There are different purposes for property valuation: for secured lending or obtaining a mortgage loan, for the purpose of selling/buying real estate, in court, insolvency and tax proceedings, for financial reporting or for determining book value, etc. Different purposes may require the use of different bases of value, the use of different valuation approaches and methods, which in turn can lead to different valuations of the same property.

BASES OF VALUE

it is important to distinguish between different bases of real estate value. The most commonly used is market value, which is defined as 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.

In addition to market value, there are a number of other values ​​such as Equitable Value, Investment Value, Synergistic Value, Liquidation Value, Fair Value etc. which are used in different circumstances for different purposes.

In Slovenia, GURS publishes the so-called generalized real estate values ​​intended to be used in administrative and judicial proceedings. With the system of mass valuation, the state wants to determine a generalized value for each real estate, which is as close as possible to the actual market value.

VALUATION STANDARDS

Various international and national real estate valuation standards are in use around the world. In Slovenia, the International Valuation Standards (IVS) are predominantly used. Other less frequently used standards in Slovenia are RICS Valuation Global Standards and TEGoVA – The European Group of Valuers' Associations. USPAP – Uniform Standards of Professional Appraisal Practice is used in the US.

VALUATION APPROACHES AND METHODS

There are three methods of real estate valuation: Market Approach, Income Approach and Cost Approach.

REQUIRED DOCUMENTATION FOR VALUATIONS

In order to assess the value, it is necessary to submit documentation about the real estate:

• Identification of the object of assessment
• Intended use (purpose of valuation)
• Client and intended user(s) of the valuation
• Building and use permit or location information for vacant land
• Plans and technical descriptions, if available
• Rental contracts or data on rents, if the facility is rented out
• Other important documentation on the property that might have a significant impact on the valuation

PRICES OF VALUATION REPORTS

Prices vary from valuer to valuer, type of property, intended use, complexity of the property being valued. Approximate prices in Slovenia are:

When ordering valuations of a large number of properties (portfolio), valuers usually grant special discounts.

TYPES OF VALUERS

There are two types of valuers in Slovenia:

• Certified real estate valuers: permission to perform valuations is granted by the Slovenian Institute of Auditors. To earn the title, valuers must complete a one-year training course with a final thesis. The license is renewed every 3 years, regular education is required for renewal. Trained valuers are supervised by the Slovenian Institute of Audit and the Agency for Public Oversight of Auditing.
• Court valuers: court valuers are appointed by the Ministry of Justice primarily for the needs of the courts or an administrative body. To obtain the title, it is necessary to pass a proficiency test. Appointment is for an unlimited period of time. Supervision of their work is carried out by an Expert Council, which operates within the Ministry of Justice. Valuers need to be educated regularly.

RELIABILITY AND SUBJECTIVITY OF PROPERTY VALUATIONS

The valuer searches the market for comparable realized sales (or rental) transactions with similar real estate, then adjusts the sale prices (or rents) of these transactions accordingly to the properties of the subject property to be valued and then, based on that data, tries to estimate the value of the property as accurate as possible.

However, since real estate is not regularly traded and property is very heterogeneous by its nature (in terms of purpose, location, properties), the selection of comparable transactions is limited, and their sale prices often differ greatly from each other.

Since the methods of selecting comparable transactions and making adjustments are not precisely prescribed in the valuation standards, the valuer may use very subjective methods of valuation, as a result of which different valuers may evaluate the same property very differently. Therefore, it makes sense for the user of the valuation to review the valuation process or request appropriate explanations of the procedure if it is not disclosed.

WHAT CAN I DO IF I DON'T AGREE WITH THE VALUATION RESULT?

In principle, there is always the possibility of appealing the valuation. However, challenging the valuation can be very difficult, as they are carried out by specially trained professionals. If you believe that the valuer overlooked an important comparable transaction or data, you may consider appealing it. If you choose to do so, you'll need evidence of why you disagree with their valuation. For example, additional information about current comparable sales in the assessment area. Of course, it is always possible to get a second opinion or order an additional valuation report.

WHEN TO ORDER AN APPRAISAL?

Clients often order a valuation after a property transaction (purchase transaction, loan agreement, etc.) has already been negotiated. From the valuer they only expect a "formal" confirmation of the value already agreed. However, inconvenience can quickly arise if the valuer estimates a value lower (or higher) than expected. Therefore, it is highly recommended that the valuation is ordered early enough in the intended transaction process.

HOW TO CHOOSE A VALUER

Research  the article Satisfaction of users of real estate valuation reports - survey showed that, except to a low price, the most important thing for clients is a short deadline for the valuation report and that the valuation is in line with their expectations. The reliability and accuracy of the valuation, however, seems to be less important.

In practice, clients often expect the valuer to confirm the client's expected value or to estimate the value in accordance with their interests. For example, if a client applies for a loan, he wants the valuation to be as high as possible. The same applies to sellers of real estate and vice versa to buyers. The demand for valuers with such an approach is therefore the highest.

The emphasis of our property valuations is on the objectivity and reliability of valuation – for which we use advanced statistical methods with a large number of available market data. We also follow modern evaluation trends. The valuation reports are transparent and easy to trace for the user. However, we do NOT adjust the valuation to the client's wishes.

VALUATIONS OF APARTMENTS AND RESIDENTIAL HOUSES

As a rule, residential property is valued using the market approach. A valuer analyses the market and looks for transactions with residential properties that occurred close to the valuation date and are similar to the subject property (in terms of location, size, age, other properties, etc.). The more comparable sales are available, the more reliable the valuation becomes. Valuations of apartments are therefore most reliable in major cities, where most transactions happen. Residential houses are more heterogeneous than apartments, so there are fewer quality comparable transactions, and consequently valuations are less reliable.

VALUATIONS OF BUSINESS PREMISES

Business premises (office, commercial and industrial space) can be rented. By renting out a property, it generates a cash flow (income) that can serve as the basis for assessing the value of the property. In addition to the market approach, the income approach is therefore often used to assess the value of commercial property. Future cash flows (rents) are converted into a single value by discounting, which serves as an estimate for the value of the property. A valuer analyses the rental market and looks for similar rental deals. The more similar rental deals there are, the more accurate and reliable the valuation can be. Valuation Report

VALUATIONS OF TRADE RELATED PROPERTIES

A special example of commercial property is Trade Related Property, that is any type of real property designed for a specific type of business where the property value reflects the trading potential for that business. This group includes hotels and other accommodation facilities, restaurants and catering establishments, petrol stations, theatres, sports facilities, etc. In these cases, the valuation refers not only to the property, but also to equipment and intangible assets. All three components constitute a complete entity and define the value of the property. Valuation of such a property is therefore much more challenging.

VALUATION OF DEVELEPMENT PROPERTIES

Development properties are defined as real estate where development is required to achieve the highest and best use, or where improvements are either being contemplated or are in progress at the valuation date. Such properties include: construction of buildings, previously undeveloped land, the redevelopment of previously developed land, the improvement or alteration of existing buildings or structures, land allocated for development, and land allocated for higher value uses or higher density. Such valuations are characterized by several possible outcomes of the project (scenarios) and thus by high uncertainty of valuation. For such purposes, we have developed a special method of valuation using the Monte Carlo method Monte Carlo Valuation Report.