1. CONNECTION BETWEEN VALUATION STANDARDS AND REAL ESTATE APPRAISAL PROCEDURE (A COUNTRY BASED APPROACH) Maile Kajak, consultant Colliers International Estonia Kaarel Sahk, lecturer Estonian University of Life Sciences June 2010

2. SUBJECT CHOICE Quality of valuation reports is very different:  In spite the national standardization, no solid and confidential valuation report form To problematic issues is given too little attention:  no recurrent analysis of problematic issues;  the sanctions for poor quality of valuation reports are too soft;  little training level of real estate appraisers

3. OBJECTIVES OF RESEARCH To make and clarify a summary of the main mistakes and the deviations from the Estonian Valuation Standards To give, if it is available proposals for standards To draw attention and underline the necessary training topics among appraisers

4. BUILTUP RESEARCH CASES ENQUIRY RESEARCH AUDITS

5. Valuation cases processed by the Estonian Association of real Estate Appraisers  Total: 82 different cases The results of audit of certified appraisers  Total: 25 audit reports The results of the questionnaire based on valuation cases and audit results  Total: 52 answers DATA AND METHODOLOGY

6. RESULTS Analysis of valuation cases (1) Distribution of case filers:

7. RESULTS Analysis of valuation cases (2) The main reasons for filing the cases:  large difference between valuation results;  low valuation result;  mistakes in valuation object description.

8. RESULTS Analysis of valuation cases (3) Main mistakes:  unrealistic assumptions;  the appraiser has not considered the restrictions and lease agreements encumbering the object;  the appraiser has not analysed the highest and best use of the object;

9. RESULTS Analysis of valuation cases (4) Main mistakes:  the information about building permits and certificates of occupancy has not been brought out;  valuators do not often explain why the specific valuation methodology has been implemented;  appraisers mix up capitalization rate and discount rate and the terms value, price and cost

10. RESULTS Analysis of audit results (1) The main mistakes are similar to valuation cases analysis results Estimations given to certified appraisers during auditing – “good”, “satisfactory” or “non sufficient”

11. RESULTS Analysis of questionnaire answers (1) Distribution of appraisers, who answered to the questionnaire:

12. RESULTS Analysis of questionnaire answers (2) Type of a mistakeCases and auditing results Answers of the questionnaire Dates of inspection, valuation and value Appraisers keep mixing upAppraisers don’t understand the difference The information about building permits, certificates of occupancy and planning Has not been often brought out 92% of the appraisers brings the information out always, 8% sometimes Highest and best use analysis Missing or not thorough enough Analyzed by most of the appraisers Economic overviewOften missingIncluded in 88% of the respondents reports Argumentation of the inputs used in valuation Often not thorough enough85% of the respondents justifies the inputs always, 15% sometimes Difference between capitalization and discount rate Appraisers keep mixing up73% of the respondents understands the difference

13. The general quality of the valuation reports has improved (EVS have an important role) Standard mistakes are repeated The national valuation standards need a review The full paradigm of appraisal procedure needs to be standardized Conclusions (1)

14. FAQ The need for trainings and seminars on the subjects of valuation like  Valuation of special purpose properties and complex objects  legislation,  economics and  financial topics CONCLUSIONS (2)

15. LLL Theoretically knowledge requirements Previous education and experience assessment CONCLUSIONS (3)

16. Additional information This presentation is based on the master thesis of Mrs. Kajak “THE QUALITY PROBLEMS OF PROFESSIONAL REAL ESTATE VALUATION IN ESTONIA“ Thesis were defended in December 2009.

17. Contact adresses for further information: M.Kajak@colliers.ee Kaarel.Sahk@emu.ee M.Kajak@colliers.ee Kaarel.Sahk@emu.ee According the current presentation the empirically paper will be copiled.

18. Thank You for listening!