The complexity of integrating local and international valuation guidelines

The complexity of integrating local and international valuation guidelines

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  • 2021-06-08
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Real estate valuation has various risks due to nature of the complex features of real estate value estimations. Real estate appraisal professional need to minimize these risks as possible as they can by utilizing various methods. Using backward-looking historical data in the valuation process represents one of the usual explicit risk. To address this valuation problem, the European Commission for Economic Recovery and Resilience (RRF) project aims to develop actual market transaction framework to estimate asset values. Attempting to use actual transaction data is definitely a big step towards the estimation of fair market value and increasing market transparency in real estate markets.

Similar to those of accounting and financial reporting standards, real estate valuation also needs to employ international valuation standards for the local valuation practices. However, the evidence and market observations generally suggest that real estate appraisers do not fully accept and implement this global strategy into their local markets. One of the reasons of using traditional real estate valuation approaches is too complex outlook of international valuation standards. Taken into account well-developed sophisticated structure of the international valuation standards, one may argue that existing local applications may represent a low quality appraisal practices. This may possibly contribute valuation uncertainty in practice.

As a timely answer to this problem, AVNT suggests to develop Valuation Standards Guide. This excellent attempt involves to enable assessors to use the provisions of International Valuation Standards (IVS), European Valuation Standards (EVS) and European Business Valuation Standards (EBVS) together with their application in Lithuania. It is very well-known that these standards involve huge amount of complex and up-to-date scientific valuation knowledge. To develop a standard wizard is a great idea, however it requires a highly sensitive and intensive studies due to problems of adopting the international rules to daily valuation practice.

I am pleased to see that the government of Lithuania takes into consideration the necessary research required to successfully implement the RRF. However, based on my experience as a senior regulator at Capital Markets Board of Turkey since 1995 (and previously: member of RICS (MRICS; 2010-2015), consultative member of RICS Sustainability Task Force Europe (2011-2014), member of RICS Facility Management Group (2011-2015) and deputy chairman of the Education Committee of the Association of Appraisal Expert of Turkey (2015-2017)), I think that this project cannot be implemented quickly as expected, but most likely will need continuous questioning and improvement. Thus, this excellent rule-making attempt needs a high quality work planning and actual on-site studies.

Initial stage of such a project planning requires to search all relevant private and public sector institutions related to real estate transaction, to define/collect data sets, and develop an objective framework to adjust values. The most critical points in this process would be an excellent understanding for the international valuation context, develop high quality communications with stakeholders, and show high quality performance for all details. The ability to simplify international rules for average appraisers are probably the key for the real success.

About the Author

Doc. Dr. Yener Coşkun is an associate professor in finance with a specific focus on financial economics, housing macroeconomy, and (business/real estate) valuation. As a visiting scholar, Yener studied in Wharton School, UPENN, in 2003 and in University of Sheffield in 2019. He currently holds visiting lecturer positions at TED University (2019-) in Turkey and teaches capital markets, corporate finance, and possibly ESG investing. He has 4 published books, 51 journals, and 69 professional articles. His studies published in Housing Studies, Emerging Markets Review, and Empirical Economics. Coskun currently edits a book (from Springer) on cyclical real estate valuation & finance, teaches professional level business valuation and ESG/sustainability courses, conducts various ongoing academic studies. Yener has been working for Capital Markets Board of Turkey since 1995 as senior regulator. In his latest published book, as the editor Dr. Coskun also analyses valuation standards of IVS, TEGOVA, and RICS with the unique contributions of the CEOs of these institutions.

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