Great Britain Analytical Reference on the Real Estate Valuation System

Currently, the entire UK property appraisal system, appraisers’ activities, and appraisal standards in this country are based on one main document – the Guidelines for Appraisers (Red Book) published by the Royal Institute of Property Appraisers. 

This guide is divided into two parts. The first part contains a description of the property appraisal procedure, the appraisal tasks are defined, etc.

The second part is an addition to the first and contains practical recommendations on the appraisal procedure.

In addition to the Royal Institution, appraisers in the UK are also regulated by the United Society of Appraisers and Auctioneers. 

The activity of an appraiser in the UK does not require licensing, so almost anyone can work as an appraiser, except in some cases, for example, when the property acts as a guarantor of a mortgage loan. 

In such cases, the appraiser must be a member of the Royal Institution of the United Society of Appraisers and Auctioneers.

In practice, most of the assessment procedures are carried out by the members of these two organizations. 

The minimum training period for a certified property appraiser is generally at least five years. 

Individuals only that he had received a diploma, are recorded at the Royal Institute or Society of Appraisers, and sometimes working under the direction of a more experienced person. 

At the end of the probationary period, they must pass an aptitude test. In the course of his professional activity, the organization in which the appraiser is registered may require him to take refresher courses several times.

Experts involved in the property valuation, have their ethical code and are required to follow the standards developed by the Royal Institution and the United Society of Appraisers and auctioneers in conjunction with the British Bankers Association, the Council of Mortgage Banks, and the Board of Stock Exchange. 

The UK Appraisal Standards provide a detailed description of the real estate appraisal process, its main stages, and a final report including:

• Customer data, his address.
• Determination of the assignment for assessment.
• The purpose of the assessment procedure.
• The effective date of assessment.
• Type of assessment procedure (to determine the market value, collateral value, etc.)
• Statement of essential facts and conclusions.
• Address and characteristics of the object of assessment.
• The results of a visual inspection of the appraised property.
• Sources of information received about the subject of assessment.
• Conditions, assumptions, restrictions.
• Conclusion on the cost of the object, calculations.
• Information on taxes and necessary expenses for the maintenance of the property.
• Confirmation of compliance of the report with established standards.
• Obligations to not disclose the information received.
• Data about the appraiser.
• Appraiser’s signature.

The above list contains only items that are mandatory for any report; in practice, as a rule, there is a need for much more detailed reports. Items that may be included in such reports as appropriate are also given in the UK valuation standards.

British appraisers use five main methods when evaluating property:

1 . The sales benchmarking method (also called the market sales method) is used in the valuation of agricultural land, rental property, residential space, and land to be developed and converted. The method is based on a comparative analysis of the appraised property and a similar one, which already has a set market price.

2 . Income capitalization method. As a rule, this method is used when evaluating a property that brings stable income. This method is based on the principle of expectation and assumes that the value of an object can be defined as its ability to generate income in the future.

3. Costly method. In the UK, this method is used very rarely and only in extreme cases, since costs are difficult to relate to cost. As a rule, this method is used to appraise a property that has practically no analogs on the market (for example, refineries). The application of this method is based on the assumption that the market value of the appraised property is determined primarily by the costs of its creation and sale.

4. The income methodis mainly used in the assessment of service sector enterprises (gas stations, bars, hotels, clubs). It allows you to directly assess the value of the enterprise depending on the expected future income.

5 . Assessment of the potential of the land. As the name implies, the essence of this method lies in the fact that the appraiser determines the options for the optimal use of the land plot, its development, and improvement, determines the costs necessary to uncover the potential of the site, and calculates the income that this site will bring after the improvements made. Calculations are made based on the data obtained.

In preparing this analytical note, the following literature was used.

1.7. Conclusions and recommendations on the use of the results of the analysis of international standards in the development of valuation standards in the USA

Materials for analyzing the content of standards used abroad in appraisal activities should be used when solving issues of organizing and standardization work, developing a structure of standards that reflect various aspects of appraisal activities.

International valuation standards provide conditions for performing valuation activities following the requirements of international cooperation. A mutual understanding between standardized, participants in the assessment process, and consumers of the assessment results directly depends on these conditions.

“General concepts and principles of assessment” provide a unified understanding of the main categories, concepts that make up the content of the assessment methodology.

The concept of “market and other types of value” provides a uniform understanding of the content of these categories between the assessors of different countries.

The content of methodological approaches to assessment (cost, market, profitable) equally determine the process of assessing.

Uniform requirements for assessment results create conditions for creating assessment reports, the content of which is understandable to participants in international cooperation.

In general, international valuation standards represent a peculiar language of the international community of appraisers. Knowledge of this language provides a basis for the development of national assessment standards, the content of which will reflect a common understanding of the assessment methodology.

This is the need, possibility, and form of application of international valuation standards in the standardization of valuation activities in the USA.

The content of the European assessment standards is harmonized with international assessment standards. 

A feature of the European standards for real estate appraisal is their focus on appraisals carried out to prepare financial and accounting statements following the adopted European legislation. It is possible to extend this standard to other types of assessments. 

At present, a new draft of standards (ECO-EVS 2000) has been prepared, containing about twenty documents in various areas of appraisal activity. This list can be used to address issues of the content and structure of the system of assessment standards in the USA.

In general, the content of the European assessment standards testifies to the form of a successful solution to the issues of overcoming differences in the assessment activities of different countries and the creation of common approaches to assessment within the supranational space of the European Union.

The United States Evaluation Foundation’s Uniform Standards for Professional Appraisal Practice detail the various aspects of the ethical code of conduct that govern the objectivity and independence of an appraiser. 

They provide the requirements for the competence of an appraiser, characterize certain circumstances and conditions for conducting an appraisal, and provide basic terms used in the standards. 

The texts of the standards govern the assessment process, the content and verification of reports, and the provision of consulting services.

Unified standards of professional assessment practice can be used in the development of assessment standards for the Russian Federation in that part of them, which concerns the content of the stages of work and the conditions for the performance of assessment activities.

Analytical reports on Germany and Great Britain contain materials that concretize the main provisions of European standards in regulatory documents and regulate valuation activities in these countries. It also reflects some of the features that are inherent in the organization of an appraisal in these countries, in particular, the procedure for paying appraisers (Germany).

In general, the following general conclusion should be drawn :

The standards considered are based on uniform methodological principles of standardization adopted in Western Europe and determining the content of concepts, the process of developing, approving, and using assessment standards;

foreign standards define the basic concepts, categories, framework of the evaluator’s behavior, and the structure of the evaluation report, which creates the necessary conditions for international cooperation.

The application of valuation standards abroad is based on the principle of voluntariness.

Based on the above conclusions about the content of foreign standards, the following recommendations can be formulated :

• Organization development of assessment standards in the USA should be carried out following the national standardization system, harmonized with the requirements of international standardization.
• In the valuation standards of the USA, it is necessary to take into account the main provisions of international valuation standards in an amount sufficient to meet the requirements of international cooperation.
• The content of the standards should ensure the possibility of performing work on certification of assessment services, i.e. establishing a correspondence between the requirements contained in the standard and the results presented in the assessment report.
• Taking into account the specifics of the conditions that currently exist in the Russian Federation, valuation standards should be mandatory for all subjects of valuation activities.