Automated Valuation Models for Mass Valuation Purpose in Latvia Workshop On Automated Valuation Models Of Real Estate For Cadastre Purposes, Santiago de Compostela, Spain October 19-20; 2006

General Data Geography: Location: Eastern Europe, bordering the Baltic Sea, between Estonia and Lithuania. Area: sq. km. ( sq. mi.) Terrain: Fertile low-lying plains predominate in central Latvia, highlands in Vidzeme and Latgale to the east, and hilly moraine in the western Kurzeme region. Forests cover one-third of the country, with over small lakes and numerous bogs. People: Nationality: Latvian's. Population: 2.33 million. Capital: Riga ( ) Other Cities: Daugavpils ( ); Liepaja (87 000); Jelgava (66 000); Jurmala (55 000); Ventspils (44 000); Rezekne (38 000).

State Real Estate Cadastre Information System (Cadastre) Number of objects in Cadastre (on ): Real property objects: land units ~ constructions ~ groups of premises ~ Real estate: land estate (land with buildings incl.) ~ building estate (land for rent) ~ apartment properties ~

Development of Mass (Cadastral) Valuation in Latvia (1) After restitution of independence (1990), enforcement of land reform took place in Latvia: main tasks of land reform – restitution of property rights (for real owners and their inheritors); restitution of property rights has constitute ground for development of land valuation principles. Until the year 1994 – cadastral valuation (agricultural land) and inventory of buildings and structures (replacement of building costs) has based on formerly applied approaches (valuation methods). From the year 1994 – introduction of new, on the market data based approach for valuation of urban land (land value zonings).

Development of Mass (Cadastral) Valuation in Latvia (2) In 1997 – first mass valuation took place for the purpose of real property taxation. From the year 1998 Law “On Real Property Tax” became into force, and mass valuation procedure obtained obligatory status. In the year 2000 – valuation of buildings took place for cadastral valuation purposes. Until the year 2006 – updating of cadastral values take place for municipal units (towns and rural municipalities) and groups of objects of valuation (land, buildings). From the year 2006 Law “On Cadastre” became in to force for regulation of Cadastre system, included cadastral valuation (first law on Cadastre after gaining of independence and starting point for transition period of existed cadastral valuation system).

Legal Framework Cadastral (mass) valuation: Law “On Cadastre" – into force since January 1st, 2006; Regulations of Cabinet of Ministers “Regulations on Cadastral Valuation” – Regulations # 305; April 18th ; 2006.

Procedures Procedure of cadastral valuation: State Land Service (SLS) – responsible institution for cadastral valuation of real property (development of value zonings and determination of indexes of cadastral value basis – base values and correction coefficients); Cabinet of Ministers – conforms value zonings and cadastral valuation indexes; SLS – automated valuation according data of Cadastre (all registered objects).

Work Organization (SLS) Organization of procedures take place in three levels: Central unit – development of methodic and models, analysis of market data (for all country), participation in development of cadastral valuation indexes, management of cadastral valuation process in general; Regional centers (8) – coordination of cadastral valuation process in local level (bureaus); Bureaus (28) – development of value zonings (local administrative units) and participation in the development of cadastral valuation indexes.

Software Collection and processing of market data – special program on the platform of Oracle: for data collection – online processing transactions data base (OLTP); for data processing – online analytical processing data base (OLAP), Oracle Discoverer. For statistic processing of data – “Statistical Package for the Social Sciences” (SPSS). For testing of indexes of cadastral valuation – special software on the Oracle platform; for data processing – OLAP data base, Oracle Discoverer. Automated valuation of objects – all models are integrated in Cadastre System (special software, on the Oracle platform).

Development and Testing of Valuation Models Determination of characteristic data of valuation objects which theoretically have impact on value according comparable (similar) objects in Cadastre System; Creation of experimental model of valuation; Determination impact of used factors according methods of statistic analysis; Testing of cadastral valuation indexes (basic values, correction coefficients etc.); Regular testing of cadastral valuation indexes (take place after valuation of all objects).

Determination of Indexes for the Purpose of Cadastral Valuation until the year 2006 Development of cadastral valuation indexes and value zonings took place for all groups of valuation objects within administrative units (urban and rural). Problems: cadastral valuation indexes and value zonings are developed for particular municipalities and whole state is not treated in the same time: unequal situation between municipalities; discrepancy with real estate market. cadastral valuation indexes of land and building are developed not in the same time; special development proposal is needed – prescribed procedure; municipalities have wide possibilities to affect results – procedure of conforming.

Determination of Indexes for the Purpose of Cadastral Valuation after the year 2006 Regular (each 4th year) determination of cadastral valuation indexes take place for specific valuation objects (type of property) in the same time for land and buildings: For rural properties – development of zonings of agricultural land and forest land – on the first time in the year 2007; Residential properties – development of residential properties zonings – on the first time in the year 2007; Industrial type of property – development of industrial properties zonings (as well as determination of indexes for engineering structures) – on the first time in the year 2008; Commercial and public property – development of commercial properties zonings – on the first time in the year Estimation of real estate market correction coefficients will take place after two year time period for each developed value zoning (other indexes will remain unchanged).

Methods of Valuation To determinate indexes for cadastral valuation purposes are used internationally well-known methods of valuation: Sales comparison method – the most applicable method – for valuation of land for construction and agricultural properties; as well as for development of cadastral valuation basis for building cadastral valuation; Income (capitalization) approach – for development of cadastral valuation basis of forest land; Coast approach method – for development of cadastral valuation basic values of buildings and engineering structures.

Applicable Information For development of indexes of cadastral valuation and value zonings: Real estate market data (sales and rent information, construction costs, supply and demands, market trends and activity); Undirected information – main factors of impact on sales prices (on the basis of market data analysis); Local territorial plans and detail plans, other information regarding infrastructure development; Information of legal acts (borders of preservation areas, nature preservation areas); For mutual comparison of municipalities – social economic information of the specific municipality, statistics – unemployment, number of economic active population, demographic data etc.

Application of Market Information Regular updating of data base (actual information): real estate market data from Land Book Register (legal agreements); characteristic data from Cadastre System. All developments – based on the real estate market information (for the time period no less than 2 years). Selection of data for development of cadastral valuation indexes: mathematic approach – for separation of untypical data; individual approach – manual evaluation of data and comparison of data with accessible information.

Object of Valuation Land – according use of the land: Land for construction purpose – 9 groups, incl.: Land for single residential houses; Land for multilevel residential buildings; Land for construction of commercial objects; Land for industrial objects. Rural (agricultural) land – 3 groups, incl.: Agricultural (arable) land; Forest land; Land under waters. Buildings – 105 types of buildings (9 groups); Engineering Structures – 703 types (89 groups); Real property.

Land for Construction (1) Main factors of valuation of land for the construction purpose: Land area (m 2 ); Location (in the country, with in borders of municipality); Restrictions of land use; Use of real property (land use type).

Land for Construction (2) Algorithm (formula) for calculation of cadastral value: Kv – cadastral value (in Latvia's currency, lats; Ls); Bv – basic value of land for construction use (Ls/m 2 ); P LM – area of land use type (m 2 ); K samaz – correction coefficient of area; K T – market correction coefficient; K apg – correction coefficient of impact of restrictions; K p – correction coefficient of pollution.

Land Value Level of Residential Land in Riga (Capital City of Latvia)

Agricultural and Forest Land (1) Main factors of valuation of agricultural and forest land: Land area (ha); Location (in the country, with in borders of municipality); Restrictions of land use; Land use type; Division of land use types (with in limits of the property); Quality of agricultural land (natural fertility, amelioration, conditions for mechanic cultivation); Quality of forest land (type of natural growth – natural fertility, wetness) Possibilities of construction of buildings (or existed buildings).

Agricultural and Forest Land (2) Algorithm (formula) for calculation of cadastral value: Kv – cadastral value (in Ls); P LIZ – area of arable land (in ha); Bv liz – basic value for agricultural land (Ls/ha); P M – area of forest land (ha); Bv M – basic value for agricultural land (Ls/ha); P P_Z – area of other land (in ha); P* P_D – land under ponds and yards (in hectares); Bv* LIZ – basic value of fertility of land (within limit of 3 groups); (Ls/ha); b – indication regarding residential housing; b = 1 – if there is one residential building; b = 0 – if there are no constructions; C maja – constant coefficient of housing impact; K apg – correction coefficient of restrictions; K p – correction coefficient of pollution; K T – market correction coefficient.

Land Value Levels of Agricultural Land

Land Value Level of Forest Land

Buildings (1) Main factors of valuation of buildings: Size (m 2 ; m 3 ); Location (in the country, with in limits of municipality); Restrictions of use; Type of building; Physical conditions.

Buildings (2) Algorithm (formula) for calculation of cadastral value: Ē KV – cadastral value (in Ls); Ē Bv – basic value for type of building (regarding size of building); A – size of building (in m 2 or m 3 ); K S – correction coefficient of physical condition of building; K kor – correction coefficient of size impact; K li – correction coefficient of restriction impact; K T – market correction coefficient.

Land Value Level of Residential Buildings

Engineering Structures (1) Main factors of valuation of engineering structures: Size; Location (in the country; with in limit of municipality); Type of engineering structure; Physical condition.

Engineering Structures (2) Algorithm (formula) for calculation of cadastral value: IB KV – cadastral value (in Ls); IB Bv – basic value for the type of engineering structure; A – size parameter; K S – correction coefficient of physical condition K T – market correction coefficient.

Real Property Cadastral value of real property can be estimated as a sum of cadastral values of related objects (land, located buildings and engineering structures). Cadastral value of apartment can be estimated as a proportional part from sum of cadastral values of building, land under building and related functional buildings.

Accessibility of Information Value zonings and indexes of cadastral value basis of all municipal units are accessible in website of SLS

Application of Cadastral Value For real property taxation (main task); For stamp fees (Land Book fee, inheritance fee etc.); For land rent (in cases of enforced rent); For privatization of land under constructions; For rent of unprivatized rural state and municipal land; For estimation of value of comparable land; For enforcement of land reform (estimation of number of vouchers).

Future Development Improvement of graphic data of value zoning maps (for the purpose of automatic zoning updating) – In present automated zoning updating take place once a year (other time manual work); Digitization of fertility maps (agricultural land) – development of data basis – In present all actions are manual; Improvement of valuation model of residential houses (additional characteristics – well equipped, etc) – In present there are some empty windows in Cadastre (no information or registration is not completely done). Improvement of graphic information of market data (automatic maps of transactions) – In present all market data maps are manual.

Thank You for attention! Questions please! Martins Lazdovskis