Real Estate Valuation

Real Estate valuation is crucial for a multitude of reasons. The high investments in properties and buildings require a thorough and objective analyses which can only be conducted by professionals.

Generally speaking, the market value is determined in order to evaluate the real estate worth. In addition to the market value, the following terms are equally important for real estate valuation:

  • Real value
  • Loan value
  • Assessed value
  • Ground value
  • Land value

For a long time, standardized terms and indicators were not necessary for the valuation of real estate, which resulted in working with speculative elements. Even though real estate valuation does not only rely on a calculation with key figures, but also on the correct interpretation, standardization becomes increasingly relevant. In Germany, the Property Value Regulation (Immobilienwertermittlungsverordnung - ImmoWertV) of 2010 has replaced the prior Valuation Ordinance (Wertermittlungsverordnung - WertV) from 1988. This new regulation has standardized the real estate valuation. Additionally, the legislators were aiming to increase the recognition of German valuation reports abroad, which has only been realized partially.

The ImmoWertV defined the necessary terminology and valuation procedures as binding for experts (both privately commissioned and publicly appointed) and expert committees.

THE VALUATION OF PROPERTIES

The property valuation is based on the determination of the land value. This can be done with reference to appropriate ground values or by means of a comparative value method. According to the German Building Code (BauGB), expert committees are to be formed for the determination of land values. These committees consist of independent experts and a staff member of the financial services authority. These expert committees are responsible for the determination of the land value.

THE VALUATION OF BUILDINGS

Real estate valuation can be conducted from different perspectives depending on the purpose. A bank has different methods of real estate valuation for a loan than a broker or a potential buyer. Due to these different objectives and depending on the availability of data, there are different valuation methods, which we explain more in detail in our Wiki.

These include the following:

  • Comparative value method
  • Net income value method
  • Asset value method

SUMMARY

Real estate valuation relies on specific key indicators. Experts conduct the valuation. Key indicators make real estate comparable and evaluable for non-experts. It is crucial to not only rely on key figures in order to get the most exact impression possible. For the professional valuation of real estate, there are legal procedures for the determination of the value of the property.


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