TEGoVA The European Group of Valuers Associations www.tegova.org - - PowerPoint PPT Presentation

TEGoVA

The European Group of Valuers Associations

www.tegova.org

About TEGoVA

The European Group of Valuers Associations (TEGoVA)

• is the European umbrella organisation of national

property valuation associations

• was established in 1977 by valuation associations

from Belgium, Germany, France Great Britain and Ireland in order to establish common valuation standards in accordance with the 4th company directive law

Members

Today TEGoVA represents the interests of 40 professional associations from 27 countries with a total of 100.000 professional valuers.

TEGoVA’s Role

The European Union is integrating rapidly, removing barriers and creating links between more and more citizens and states. Real estate is the bedrock of the European economy,

• through housing
• through ever-adapting accommodation for businesses

and industry

• through public economy and
• as an asset class.

TEGoVA’s Role

A dynamic European economy serving its citizens needs cross-border property investment. To invest in property, people need to be able to compare. Valuation is at the heart of this, as essential to transparency and comparison as the euro

• itself. Properties across the Union need to be valued on the

basis of common European standards applied by valuers with a common high level of competence and integrity

TEGoVA’s Role

TEGoVA organises and achieves this

• by drafting European Valuation Standards (EVS),
• through its systems of approval of valuer certification

bodies according to EN 45013 and ISO 17024,

• through it’s system of professional recognition and
• through its minimum education requirements and

corporate governance rules for valuers.

TEGoVA’s Role

Headquartered in Brussels, TEGoVA is positioned to collaborate with the European authorities as they draft the European Internal Market legislation affecting real estate and valuation in the Union and beyond.

TEGoVA Secretariat Place de la Vieille Halle aux Blés 28 1000 Brussels Belgium

EVS 2003 (the blue book)

The Fifth Edition The fifth edition of European Valuation Standards 2003 breaks new ground by including material on valuations for securitisation purposes, the effect of market shock, corporate governance and much expanded sections of the valuation

• f agricultural properties. The section on

country-specific matters has also been greatly expanded to cover most member countries.

EVS 2003 (the blue book)

The Purpose EVS 2003 provides a benchmark against which consistent and coherent reports can be prepared for clients, compatible with international practice international accounting standards and European Legislation.

EVS 2003 (the blue book)

The Structure

The book comprises Standards, Guidance Notes and Appendices. Standards are concerned with fundamental valuation principles, and Guidance Notes are concerned with interpretation and application of those principles. Appendices give further assistance in the interpretation and application process.

EVS 2003 (the blue book)

The blue book contains nine current European standards, 14 guidelines and eight appendices. New guidance notes have recently been introduced

• n:
• The valuation of mortgage portfolios for

securitisation purposes,

• Reflecting market shock, and
• Amended appendices on valuation

methodology and corporate governance. Amended guidelines can be found concerning:

• The valuation of agricultural property for

lending purposes

• Business valuations
• Country-specific legislation and practice

EVS 2003 (the blue book)

The Nine Standards

Standard 1: Compliance Issues

International Standards European Directives and National Law And Practice Derogation from European Standards

EVS 2003 (the blue book)

Standard 2: The Qualified Valuer

European Accreditation, Mutual Recognition, Local Regulation and Licensing. The Qualified Valuer - definition, competence, and qualifications and relations with the Client. Independence of valuers The Qualified Valuer's relationship with the Auditor Professional Code:

• Certification
• Qualification
• Probity
• Acknowledgement of outside assistance
• Conflicts of interest
• Support and promulgation of standards set out by
• TEGoVA and IVSC

EVS 2003 (the blue book)

Standard 3: Conditions of Engagement

The importance of clear and unambiguous conditions in writing; Summary of what should be included in the conditions of engagement; Special considerations in the following circumstances:

• Valuations carried out with limited

information

• Valuations which are inconsistent with the

Standards

• Reviewing valuations by other parties
• Sub-contracted valuations *
• Valuations passed to a third party

EVS 2003 (the blue book)

Standard 4: Valuation Bases

Valuation principles and reporting practice The purpose of valuation and uniform bases of valuation Market Value Market Rental Value EU Market Value Highest and Best Use value Fair Value Existing Use Value Value in Use Alternative Use Value Negative Values Depreciated Replacement Cost Mortgage Lending Value Enterprise Value Equity Value

EVS 2003 (the blue book)

Standard 5: Valuations for the purpose of Financial Reporting

Background Classification of Assets The Selection of Consistent Bases of Valuation Definitions Apportionment between Land and Buildings Disclosure Provisions Methodology under EC Directive 91/647/EEC Special Properties

EVS 2003 (the blue book)

Standard 6: Valuations for Bank Security Purposes and in relation to the Issue of Asset and/or Mortgage Backed Securities

The importance of consistent valuation across the European Union The valuation basis Market Value Mortgage Lending Value Special fiduciary responsibilities and obligations of a valuer The independence of the valuer Specialist knowledge Conditions of Engagement Investment Properties Owner occupied properties Development properties Properties usually valued on the basis of their trading potential Wasting assets Forced sale value, or liquidation value

EVS 2003 (the blue book)

Standard 7: Estimates, forecasts and other appraisals

The Concept of Worth (or Value in Use) - Investment Value Replacement Valuation Value in Use Forced Sale Value Bricks and Mortar Valuations Forecasts Retrospective Valuations Valuation Reviews Other Bases of Appraisal

EVS 2003 (the blue book)

Standard 8: Valuations for Investment - Insurance Companies, Property Unit Trust, and Pension Funds, etc

The EC Directive on the annual and consolidated accounts of insurance undertakings; The EU definition of Market Value; Categories of property; Reporting Practice; Transaction costs; The Qualified Valuer (Summary of parts of Standard 2;) Independence and conflicts of interest; Departure provisions; The Valuation Certificate; Methodology.

EVS 2003 (the blue book)

Standard 9: Valuation Reporting

The form of certificate used The contents of the certificate, including: The instructions, time period, identification, basis of valuation, compliance statement, condition of the property, environmental issues, risk assessment, valuation schedules, the treatment of process plant and machinery, the currency

• r currencies in which the valuations are to be reported, publication

and confidentiality clauses, third party liability, taxation, financial liabilities, model clauses for the valuation certificate Model Clauses

EVS 2003 (the blue book)

14 Guidance Notes

Guidance Note 1: Special Factors affecting Value Guidance Note 2: Valuations of Special Properties Guidance Note 3: Valuation of Plant and Machinery Guidance Note 4: Valuations of Assets for Development Guidance Note 5: Valuations of Agricultural Properties Guidance Note 6: Valuation of Historical Properties Guidance Note 7: Business Valuations Guidance Note 8: Valuations of Intangible Assets Guidance Note 9: Valuations for real estate indices Guidance Note 10: Cross-Border Valuations Guidance Note 11: Valuations for Joint Ventures, and Limited Partnerships Guidance Note 12: Apportionment between Land and Buildings Guidance Note 13: Country-Specific Legislation and Practice Guidance Note 14: Valuation of Mortgage Portfolios for securitisation Purposes

EVS 2003 (the blue book)

8 Appendices

Appendix 1: Valuation Methodology Appendix 2: Certification Appendix 3: Reviewing Valuations Appendix 4: Ethics Appendix 5: Model Conditions of Engagement and Valuation Check List Appendix 6: European Code of Measuring Practice Appendix 7: Glossary of terms used in valuation and related subjects Appendix 8: List of TEGoVA members

EVS 2006 - sixth Edition

New Structure to be presented at the General Assembly November 2005, Vienna

Transparency in Property Valuation Through Cross-Border Harmonisation of Valuers‘ Qualification

Methods Qualification of the user

Transparency in Property Valuation Through Cross-Border Harmonisation of Valuers‘ Qualification

Certification 'Approved by TEGoVA’

Certification bodies that have been accredited by a national accreditation body according to EN 45013/ISO 17024 and fulfil certain criteria set by TEGoVA can obtain a mark of excellence 'Approved by TEGoVA'

Professional Recognition MER - Minimum Educational Requirements

European Property and Market Rating A Valuer‘s Guide

Property and Market Rating is a versatile instrument for assessing the quality of property, or the risk related to the investment in property rights. As a result of the requirements emanating from the second consultative paper of the Basel Committee on Banking Supervision for rating systems determining minimum capital requirements of banks, TEGoVA has decided to create an instrument for a quality assessment of property rights.

PROPERTY AND MARKET RATING

Procedure for assessing the quality or risk related to the investment in property rights under consideration of the existing use (Rating for completed or existing real estate)

PROJECT RATING

Procedure for assessing the quality or risk related to the investment in property rights under consideration of an alternative use (Rating for projects)

European Property and Market Rating A Valuer‘s Guide

Fields of application of PaM

• Risk analysis of portfolios for securitisation purposes
• Property analysis in the context of investment and disinvestment decisions
• Portfolio analysis and control
• Loan analysis in the process of granting property loans
• The rating can be required by the Internal Ratings Advanced Approach

according to Basel II

European Property and Market Rating A Valuer‘s Guide

Rating Scale

The property and market rating employs a scale following the pattern used by rating agencies and internal rating scales used by banks. It consists of 10 grades, with 1 representing an excellent rating and 10 representing a disastrous one. The average rating is set at 5.

1=excellent; 2=very good; 3= good; 4=slightly above average; 5=average; 6=slightly below average; 7=mediocre; 8=poor; 9 = very poor; 10=disastrous

European Property and Market Rating A Valuer‘s Guide

4 models for Property and Market Rating

Residential Retail Offices Warehousing, distribution and production

European Property and Market Rating A Valuer‘s Guide Criteria Classes for the Property and Market Rating are related to

• macroeconomic aspects and to the property market
• the location of the propertty
• typological aspects of the property, preservation condition
• the cash flow

European Property and Market Rating A Valuer‘s Guide Criteria Classes for the Project Rating are related to

• macroeconomic aspects and to the property market
• the location of the propertty
• typological aspects of the property
• the cash flow
• legal, tecnical and economic aspects related to the project

Project Rating

To arrive at a rating for projects the sales prospects of the fictitiously completed property have to be rated in a first step, as this represents the exit of the project development. The second step is to consider as a fifth criteria class the development risks and chances inherent in the project. The rating for the sales prospects of the project as per the rating date will be determined using a matrix that takes into account all possible combinations of the rating for the fictitiously completed property and the rating for the risks and chances of the development.