Definition
Real estate valuations of a property consist of estimate your most appropriate price, in relation to its characteristics and the state of the real estate market at a precise moment.
The main difference with respect to an appraisal lies in the official nature and the purpose involved in each case. While an appraisal has a legal nature and its purpose is usually one of those previously explained (granting a mortgage, distribution of an inheritance, etc.), an appraisal is more aimed at owners who want to sell and need to obtain a approximate sale price.
Real estate valuations are subject to exogenous factors (supply and demand) and endogenous factors, directly related to the property itself (land, construction, expenses and profit).
Endogenous factors:
- Land value. The land is the component of the property that contributes the most economic representation to its value. The land is also the one that supports the greatest increases and the one that is subject to the greatest speculative pressures. Land is, therefore, the component that most increases the value of the property.
Land for residential, commercial and office use are those that experience the greatest increase in value.
- Construction value. The construction value always corresponds to a contracted value of the construction carried out. This criterion will be applied regardless of the type of construction and its age.
- Necessary expenses and expected benefit. The third component of the value of a property under construction or under development corresponds to the set of expenses incurred in the development of the construction process. Therefore, this section must include the taxes, fees and licenses generated by the acquisition of the land, the execution of the works and the transmission of the same. Likewise, the promoter's profit and promotion expenses must be included.
Principles of real estate valuations
They are contemplated in the ORDER ECO/805/2003, of March 27, modified by ORDER EHA/3011/2007, of October 4, on standards for the valuation of real estate and certain rights for certain financial purposes.
These principles are included in article 3 of said Order.
Credit institutions that have appraisal services and approved appraisal companies when assessing for any of the purposes included in the scope of application of this Order must do so by applying, in the terms established therein, the following principles:
- Anticipation principle. According to which, the value of a property that is in economic exploitation is a function of the income expectations that it will foreseeably provide in the future.
- Purpose principle. According to which the purpose of the valuation conditions the method and valuation techniques to be followed. The assessment criteria and methods used will be consistent with the purpose of the assessment.
- Principle of highest and best use. According to which the value of a property capable of being dedicated to different uses or being built with different building intensities, is the value that results from allocating it, within the legal and physical possibilities, to the most probable and financially advisable use, with the intensity that allows obtaining the greatest value.
- Probability principle. According to which, given several scenarios or reasonable choice possibilities, those that are considered most likely will be chosen.
- Principle of proportionality. According to which, the appraisal reports will be prepared with the appropriate breadth, taking into account the importance and use of the object of valuation, as well as its uniqueness in the market.
- Principle of prudence. According to which, faced with several equally probable scenarios or choice possibilities, the one that results in a lower appraisal value will be chosen.
- Substitution principle. According to which the value of a property is equivalent to that of other assets with similar characteristics that substitute it.
- Principle of temporality. According to which the value of a property is variable over time.
- Transparency principle. According to which the property valuation report must contain the necessary and sufficient information for easy understanding and detail the assumptions and documentation used.
- Residual value principle. According to which the value attributable to each of the factors of production of a property will be the difference between the total value of said asset and the values attributable to the rest of the factors.
These principles will be used as criteria for interpretation and, where appropriate, for integration of the rules of the ECO Order 805/2003.
To become an expert in buildings and their facilities, do not hesitate to sign up for our Master in BIM and Efficient Energy Management.
