What is a Real Estate Valuation?

By | September 26, 2021

Real estate valuation is an appraisal that is carried out by an independent expert duly certified by the ANA.

The technical appraiser has specific training in real estate valuation and appraisal and is subject to a regime of incompatibilities that guarantees his independence.

The Real Estate valuation report is valid for one year.

What is a Real Estate Valuation for?

Real Estate Valuation is a mandatory report for:

  • Mortgage guarantee of credits or loan.
  • Coverage of the technical provisions of insurance companies.
  • Determination of the assets of real estate collective investment undertakings.
  • Determination of the real estate assets of the Pension Funds.
  • The appraisal is also mandatory for the valuation of properties owned by Financial Institutions, real estate guarantees or foreclosed properties.

In addition, you must have an appraisal if you want to know the value of a property for any of the following purposes: advice on purchases, tax inheritances, adjudication in auctions, divorces, and cadastral reviews, as well as knowing the value of a property to a certain year, or mortgage guarantee for people of the 3rd age (reverse mortgage).

The current real estate market presents, in a post-crisis scenario, somewhat novel aspects for the different agents that have traditionally constituted it, each of them having to adapt to a new social, economic and political environment.

Real estate speculation, with abnormal and prolonged increases, created a bubble far removed from the current reality. In it, the rabid market value prevailed with the utmost urgency, to the detriment of valuation analyses with greater depth, integrating the different parameters that affected the properties.

As a consequence, real estate valuation in this new market leads us to the need for professionals who accredit extensive technical knowledge in construction, urban planning, real estate management, law, taxation, financial mathematics or market analysis or research; imposing specialization, either within a segment(residential, commercial, hotel)or a specific purpose(mortgage appraisal, urban valuations).

Appraisal companies analyze the economic viability of an investment, the profitability-risk binomial, sustainability, energy efficiency or tax optimization, so that the role of the appraiser has progressively derived from that of valuation consultant.

The need to work in a network with other professionals is a reality, corresponding to our professionals the active management of internal and external knowledge, enabling interactions between the teams in the different phases of the reports.

In Spain there had never been a degree specifically designed to train real estate experts, which was paradoxical for a historically relevant sector in our economy. Currently there is a wide range of specialized training at the university postgraduate level in valuations, appraisals, project and facility management or urbanism, which responds to a demand that no longer focuses exclusively on graduates in architecture or engineering, but incorporates other professionals with fundamentally legal, economic-financial or business management training that demand knowledge of real estate valuation.

Likewise, the appraisal companies have assumed the need for internationalization, professionalization and demand of our clients, planning the training of the qualified technical personnel that form our networks of national and international appraisers, including innovative actions of internal coaching and mentoring, apart from collaborations with universities in the implementation of specialization studies in the field.

In short, today’s appraiser is required to have skills in professional practice that include adequate customer service, as well as the ability to properly detect and manage conflicts of interest, always in compliance with ethical principles.

Traditionally, real estate valuations in Spain have been classified into regulated valuations(those for which there are mandatory regulations)and non-regulated valuations(the rest of valuations).

To the already traditional synthetic and analytical valuation methods have been added others such as contingent valuation, which allows estimating values of singular goods for which there is no verification, simulating that non-existent market with surveys, demand analysis to potential customers; the LCC(Life Cycle Cost)methodology, which incorporates not only statistical but also future circumstances, being able to make an initial investment vary its sign over time, and, finally, the qualitative valuation, where the value of a property is determined considering its particular qualities and analyzing the influence of these on the value objectively.

With this legal and mandatory regulation, as well as the convergence and harmonization of all these regulations, the reality is that in real estate valuations you can obtain significantly different values for the same property and on the same date, depending on what the purpose of the report itself is.

Our opinion is that this aspect is still a pending issue of the Administration, this guarantees the independence of the appraisal companies of the financial institutions(Circular 3/2014 BE).

On the other hand, there is a growing demand for valuations carried out in accordance with international valuation standards (IVS), RICSstandards (Royal Institution of Chartered Surveyors),European valuation standards (EVS) or NIC-IFRS standards.

These regulations currently represent an alternative assessment to the aforementioned standards.

In the current post-crisis scenario and the adaptation of the sector to the most real environment, we firmly believe that the exit from the real estate crisis will not be possible if the agents operating in the market do not assume that all of them, without exception, must pay maximum respect to the new social, economic and legal environment.

The new real estate market demands qualified professionals with greater independence and specialization.

Valuation companies, together with financial institutions, operating agents, promoters and investment funds, should constitute a network of pieces that, interrelated with each other, and with the experience of the mistakes made in the past, allow us to face a healthier future with greater stability.

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