Real Estate Valuation

How to Make Real Estate Valuation? Why Is It Important?

Real estate is one of the most important investment tools of today. Such properties increase in value as the time passes and in the meantime, rental income can be earned. Determining real estate values due to tax or encumbrance purposes is called as real estate valuation. This process must be done by an expert. Then, why should real estate valuation be done? What should be taken into account while making valuation?

Value and price of a property are not the same things. Property owner can define the price as he/she desires. He/she is simply free to determine the price as too low or too high. However, that determined price does not reflect that property’s real value. A property’s value is determined by an accordingly certified expert. This determined value is used in some processes like taxing, encumbrance or similar.

 

Parameters

While making real estate valuation, all parameters that come to mind should be considered. Any factor that affects use or living conditions of a property also affects its value. Yet, there is no emotional factors out there. For example, if your property is inherited from your father or if it has great importance to you, sorry but these are not considered during evaluation.[1]

Real Estate Valuation

In general, parameters to be considered while making an evaluation are as below:

  • >>> Technical status (Outer insulation, quality of material used and the number of renovations)
  • >>> Floor where the property is
  • >>> Electricity, gas, water and sewage systems
  • >>> Car park and stationary storage spaces
  • >>> Whether it has been improved with renovations or not
  • >>> Light and noise pollution
  • >>> Facilities around and infrastructure (roads, schools, shopping malls, public transportation stops etc.)

 

Documents

During valuation, some documents are necessary. Without them, no evaluation is possible. Even if it is done, it is not accepted by many agencies and institutions. Institutions running evaluation may require different documents depending on their own guidelines. Yet, here are the most frequently requested documents:

Official Documents for Company Foundation

  • >>> Technical documents (building plan etc.)
  • >>> Documents that prove the property’s value (a quote from field book etc.)
  • >>> Documents that show intended use of property (requested for lands)

These documents are crucial for evaluation process. Therefore, preparing these documents during a property sale will make the process faster for you. While buying a property, on the other hand, you have to request these documents from seller. This way, you can be sure that correct valuation is done for the property you would like to buy.

Read Also: Free Movement in Europe with Latvia Residency by Investment

 

Time

Time required to complete real estate valuation varies depending on difficulty of the valuation and working principles of the valuation agency. The simplest way of valuation is apartments built based on a certain construction project. For houses and apartments of which constructional parameters are not yet standardized require some more time. Lands, especially lands with buildings require much higher time.

Time required for valuation should be between 2-8 days when all these are considered.

 

Valuation Procedure

Real estate valuation must be made in case cooperative or limited company foundation as well as capital increase of a cooperative. This is done by one of the experts in the list of valuation experts. This expert present an opinion about related value and this opinion is recorded by the Enterprise Register. There can be no line of descent between the expert making valuation and the owner of the property to be evaluated.[2]

Valuation Procedure

Exceptions

Valuation procedure is the same everywhere in general. Yet, there are some exceptions, which are:

  • >>> During limited company foundation, if the total value of real estates is below 5.700€ and less than half of the capital, valuation can be done by the founders.
  • >>> In case the capital is paid with money market instruments or transferable properties, founders of SIA or shareholders of the respective real estate can present opinions.
  • >>> In case the company is audited by a certified auditor for processes like company merging or demerging, the same auditor evaluates property sufficiency.
  • >>> If the capital of a company with public entity is paid with a real estate worth less than 14.000€, shareholders can present opinions regarding valuation.
  • >>> Ownership contribution into the capital of a cooperative can be evaluated by the founders.

Read Also: Real Estate Investment for Beginners: Profitable Strategies

 

Things to Take Into Account During Real Estate Valuation

Real estate valuation is a very serious process and there are different consequences of it. Therefore, it is necessary to follow the process with care. Additionally, some important things should also be taken into account. Some important ones are as below:[3]

  • >>> Using world-wide valid and known techniques and methods
  • >>> Time-based valuation
  • >>> Reporting after minimizing related error margin
  • >>> Considering quality, use, benefit, income and market conditions
  • >>> Combining these with know-how and experience

Time based valuation is important. If the evaluation is done today, current value of any benefit that may be real in the future can be calculated. Or, in this process, valuations for the past can be made.

 

Why Is Real Estate Valuation Made?

There are different reasons behind valuating a real estate, which can be listed as below:

Property Valuation

  • >>> During ownership transfers to determine buy and sale prices
  • >>> During renting to determine value
  • >>> For credit transactions where real estates will be pledged as security
  • >>> During valuation of real estates that exist in a company’s assets (during security offering, company merging, company ownership transfers and during transactions that has financial statement)
  • >>> Due to inheritance, for justified property share
  • >>> When it is necessary to determine the best and the most efficient way of using properties
  • >>> To determine income/expense ratio that will result from planned investments based on years and to determine project value
  • >>> During insurance processes
  • >>> For valuation in case of expropriation, for fair payment

Read Also:When is the Best Time for Property Investment?

 

Value Concepts and Definitions

In real estate valuation, there are some concepts and definitions used. It is important to have information about these. Here are some concepts that should be known and related definitions:

Buying and selling value of a real estate when valuation is made.

Valuation of a property, of which real value is unknown or cannot be determined, based on its equivalent. Since real estates are in heterogeneous structure, equivalence value is used instead of current value.

Today’s value of all income generated by real estates or projects related with real estates throughout their economic lifetime (The term capitalization is commonly used during income value analysis. This term means converting income to value.)

Indicates a value which is higher than market. Due to different reasons, such a situation may occur.

The value that will be obtain when all assets of a property that is running actively.

The value obtained from a real estate sale in much shorter time than normal marketing time.

Replacement cost in case a property become unusable or gets damaged. It is the net value on the date insurance of that property started. It does not include land share or land value.

The value that arises by evaluating the marketability of a real estate in the future.

Disposal value of all materials that are contained by properties other than lands.

The value that exists in accounting records.

The value determined with reference to the definitions in related laws.

The value that is found by recalculating cash flow value, which is a property’s income minus outcome in the future years, based on valuation time.

Today’s value of cash that will be generated by assets that have economical value and scrap value at the end of their useful lifetime. To be clearer, it is the value obtained by using a real estate.

The value that is found by summing up all payments and expenses until assets reach to their final status.

Read Also: Buying Property in Latvia | Process & Expenses

 

Real Estate Valuation Service in Latvia

You requirements are dealt effectively with real estate valuation service in Latvia. You may require real estate valuation due to different reasons. At this point, it will be sufficient for you to benefit from our services that we provide to you.[4]

 

Valuation Service Types

Real estate valuation service has different types in itself. At the end, the valuation service mentioned here is not unique and standard. There are different types. You can benefit from professional services for all types.

By our company, many valuation procedure were completed. We valuate any type of real estate, like apartment or office, for you.

We have high level of experience in valuation of cash flow sites or private properties. We evaluate different properties like hotels, wind power plants, quarries and gas stations.

We use data, experience and analysis results obtained by our professional employees with their long-term effort to offer consultancy service in this field.

We valuate any type of equipment and vehicle in Latvia. We have high level of expertise and experience in this field.

By using special techniques for defined targets, we run real estate market research. In this topic, we provide service to some Latvian bankers, investors and developers.

Read Also: How to Obtain Maximum Profit with Cap Ratio in Real Estate Investment?

 

Try Our Real Estate Valuation Service in Latvia

You can benefit from our expertise and experience about real estate valuation in Latvia. This service, which is provided by our staff consisting of professionals, will help you make your plans in a correct way. You will determine correct real estate easily and you will not face any surprise cost afterwards. In order to get more detailed information about this topic, contact us.

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Igors Krumins continues his activities as a commercial and international lawyer within the body of “Jurmala Invest”. He has more than 10 years of experience, especially in the investment sector, and has provided consultancy services to numerous companies with his legal expertise. He successfully completed his undergraduate studies at Baltic International Academy and graduate studies at Latvijas Universitate. Apart from his native Latvian language, he can also speak Russian and English fluently.