The role of the valuer is to a fair and current value of the property and therefore give a fair and equitable price for the property.In that case market participants therefore pay for services that gives them equity and regulates or serves as a benchmark or yardstick for all of them to operate in the market.

Dear Francis,

Thanks for adding your answer! I agree with your suggestions on the reasoning of why valuers are consulted by some market participants. Apparently, the property market is one with more uncertainties or information asymmetries than other markets (e.g. for books, apples or [more expensive] cars) where valuers are only rarely if at all consulted. - Notwithstanding, I am looking for data that supports my assumption, that indeed valuers are consulted and payed for their services often when it comes to the trading of real estate. Any recommendations in this direction would be highly appreciated, too.

Best regards,

Stephan

Hi Stephen

Thanks but can you try the RICS website please.I am pretty sure you might get some valuers in good standing to consult.

For the questions, In short my answers are as follows:

(Q1) Why are market participants paying for a Valuer 's expertise of ?

(Q2) What are the role performed and the benefit provided by the Valuer?

Answer Q1

Most financial institutions that finance the purchase of any property requires (compulsory) the property to be valued by registered and qualified Valuers. The justification is the property become as a collateral / guarantor to that financing. If that property valued by unqualified people, it exposed to a variety of speculations and fraud. In some country such as Australia imposes such strict regulations of any estate transaction process should go through estate negotiators.

(2) What are the role performed and benefit provided by the Valuer?

Answer Q2

Features of the property are unique and the price or value is influenced by many different factors such as the following :

b ) Location

b ) Size

c ) Feng Shui

d ) Access, Frontage , second layer , third layer

f) Terrain , flat, bumpy, below street level .

g) Development around

h ) Public facilities including public transport

i ) Utility

j ) Zoning and planning

k ) Plant age, care, quality and production yield in the case of agricultural Property.

L ) Laws & Legislation : the category of land use, express conditions, encumbrances , freehold , leasehold , full or partial share holder .

m ) The age of the building and maintenance

n ) Depreciation

o ) Internal renovation ( known only when doing inspections on the property site individually)

p) Good vicinity and good views .

q )Secure areas or high crime rates

r) Who are the previous owner, Celebrity , politicians , Famous figures , or criminals one.

s ) The transfer takes place in a different period, are being taxed differently (advise on tax duty stamp, real property gains tax, estate duty, assessment tax).

t ) etc.

In reality no one property that really the same or similar, if it is physically possible is not the same in terms of legislation .

Therefore, every property must surveyed, made internal and external inspection and examination of details of the latest legislation of the land office to ensure the authenticity of the details of the title of properties.

In this case, the valuers are the qualified person in terms of expertise in the real estate discipline for doing the report and estimating the best value after taking into account all of the above factors before setting reasonable and fair market value of an asset and can be adopted by all parties to be indefensible in court in the event of any dispute.

Dear Wan Yusoff Wan Zahari, Dear all:

Thank you for your detailed answer.

I was a bit broad in the introduction to my specific question, I do fear.

My key interest at the moment is: Can you give references to data, reviews or statistics that help to determine HOW OFTEN ARE VALUERS CONSULTED to determine real estate prices (e.g. in other words which percentage of real estate transactions is based on an professional appraisal).

In this regard, in particular the prior answer at 1) is of interest to me. Stating that "Most financial institutions that finance the purchase of any property requires (compulsory) the property to be valued by registered and qualified Valuers." - Do you have a reference/resource/prove for this statement?

And further you state "In some country such as Australia imposes such strict regulations of any estate transaction process should go through estate negotiators." - Again: Is there a reference available to prove this statement and do you know about other countries where such regulation exists (even if only for specific real estate categories or valuation purposes)?

Thank you!

Dear Stephan Bartke,

I assume that you are not real estate valuer/appraiser.

This topic is unfortunately very country specific. (I will write as it is in Poland. I suppose in Germany it is very similar)

I will suggest one possible solution that I know. Maybe it will lead you to another solutions.

Real estate transactions require form of Notarial Act. Copy of each Notarial Act from local market by law needs to rest in county cadastral register (copies appear after few days from preparation).

Similar regulation is applied to real estate valuers. (by Real Estate Act) Abstract of his/her valuation must be delivered to the same county cadastral register after maximum 3 months from his/her written opinion on property value.

So what you may have here is the ratio of transactions to valuation reports. But only for county - local market. You may expand by sampling other counties in your country and so on. If only such data may be available for non government purpose. Please try to contact heads of departments for data access as for research. You should succeed.

You should remember that not every Notarial Act is market transaction (there are many ownership-family regulations and others...) Also this approach that I suggested has one big minus. It is limited to certified valuers and legal opinions of real estate value.

It depends what do you mean - who is being consulted.

By law - legal opinion about real estate value is given only by certified valuers. In this case my approach is quite correct.

Coming back to your question "HOW OFTEN ARE VALUERS CONSULTED" I suppose it might be an answer. You will have somehow pure data for your own. Not digested by others.

There are also other examples where values needs to be taken.

For different kinds of tax,

Also I would like to mention that any court proceedings regarding disputes over the real estate value, compensations, inheritance, require legal opinion from valuer

Valuations are also used in financial statements reporting for base price/value of assets (real property) and when party wants to make a contribution in kind.

and also Property Valuation for Securitisation Purposes and Assessment of Insurable Value

Another law regulation. All legal opinions should have form of written report.

(from which abstract are given to county cadastral departments)

I hope it helped! Good luck!

Best regards,

Michał Dudek

Wroclaw University of Technology, Poland

Here in the U.S., it is an interesting fact that give or take 90% of real estate appraisals on a purchased property (as opposed to a refinanced property, for example) exactly equal the purchase price agreed to by a buyer and seller. We saw a lot of this in the run-up to the housing bubble in the mid to late 2000s. I wonder if that percentage continues to be the same in today's U.S. housing market. I have seen some literature on this, but it is scant. For the U.S. experience, you might try the top real estate journals (Journal of Real Estate Research, Real Estate Economics, Journal of Real Estate Finance and Economics, etc.). I wish I could be of more direct help.

Dear Michał and Clifford,

Thank you both for your valuable contributions! Both - the information on the Polish system and the experience from the U.S. are highly appreciated.

@ Michał: I am well aware of the notarial acts and also of the dofferent purposes to valuation. - Your reference to the Polish Real Estate Act, whrere an "Abstract of his/her valuation must be delivered to the same county cadastral register after maximum 3 months from his/her written opinion on property value" is interesting - could you send me a direct reference to this act please?

@Clifford: Your observation is quite striking - indeed. Can you provide a reference for it or suggest further reading?

Dear All,

If you can suggest further references to legel requirements, data, reviews or statistics that help to determine HOW OFTEN ARE VALUERS CONSULTED IN PRACTICE to determine real estate prices, this would be higly appreciated.

Kind regards,

Stephan

No problem.

direct link to up-to-date Act

http://isap.sejm.gov.pl/Download?id=WDU19971150741&type=3

here it is: (from google translate, quite accurate)

Article 158

Appraisers shall provide, subject to Art. Paragraph 175. 3 bodies which extracts the real estate cadastre made ​​by myself appraisal, including determining the purpose of valuation, descriptions of the properties and their values​​, within three months from the date of their creation.

original

Art. 158.

Rzeczoznawcy majątkowi przekazują, z uwzględnieniem art. 175 ust. 3, organom prowadzącym kataster nieruchomości wyciągi z wykonanych przez siebie operatów szacunkowych, zawierające określenie celu wyceny, opisy nieruchomości oraz ich wartości, w terminie 3 miesięcy od dnia ich sporządzenia.

Best regards

Michal Dudek

Thank you Michał - Regards to Wrocław!

Stephen,

Not sure if you are talking about commercial or residential real estate?  Anecdotally, appraisals are not the basis for any arms length (independent third party) transactions. 

All loans, commercial or residential, provided by a chartered bank must have a FIREAA compliant appraisal.  They are almost universally performed after an agreed sale price.  Thus, they are not data points used in a transaction, but rather lagging indicators of market price for regulatory purchases.  As Cliff said, they often simply arrive at the purchase price because it is the most relevant market indicator, assuming it is within a reasonable range.  Private transactions cash only will rarely have an appraisal. I speak from experience as a prior capital markets banker and current researcher.

There is rich literature on appraisal smoothing or how the time lag effects pricing, grid regression, etc.  My article in forthcoming JRER is on combining hedonics and grid regression algorithmically.

So in the US, every bank involved transaction has an appraisal.  But they should be considered a factor in the purchase price.

1) Market participants pay because of regulatory requirements.

2) Primarily avoids moral hazard issues with federal deposit insurance.  On the residential side, Automated Valuation Machines (AVM) are used in many cases as well.  

In addition to the issues raised above, I would like to draw attention to the selection of a real estate valuation method, particularly in the context of residential real estates. Their relatively high liquidity enables, among others using a comparative approach, including pairwise comparison and adjustment of the average price. Assuming reliable, objective valuation of real estate, there may be differences in its level, e.g. due to the different number of comparative properties and their price range, which affects the factors determining the value of the estimated property. An interesting and controversial issue may be the concept of similar real estate, which is important in the context of estimating the value of real estate. The situation is different (i.e. real estate valuation process) in relation to commercial real estate, generating rental income, or used for operational purposes in business operations. However, here too, there are somewhat "relative" issues (understood as disputable, depending on the assumptions made), e.g. operating expenses or discount rate. Therefore, it is important to maintain objectivity and knowledge of market conditions, including current ones.