Do you know how property valuation works? Do you own a less-than-ideal share of real estate and are wondering how to deal with it? The price of a co-ownership share can be lower than the price of the whole property, which has its logical reasons.
What law do we follow?
The valid wording of the Property Valuation Act as of 1/1/2021 regulates the methods of valuation of things, rights and other property values and services, as determined by special regulations. Unless this law provides otherwise, the property or service is valued at the usual price, which is based on the comparison and averaging of the agreed (contractual) prices achieved during the sale of the same or similar property.
Other methods of valuation
In justified cases, it is not possible to determine the usual price. In such cases, the property is valued at market value, while the reasons for not determining the usual price must be stated. These reasons occur, for example, in development projects, when it is not possible to set the usual price, because similar types of land are not traded under the given conditions.
Another category is the extraordinary price, which takes into account extraordinary market circumstances or the personal circumstances of the seller or buyer, or the special popularity of the property.
The law also provides for other valuation methods, for example:
Cost method - the cost of acquisition is determined, the salability coefficient is adjusted and the value of buildings is reduced by wear and tear. This method includes basic measures of real estate, such as built-up space in m3, useful space in m2, built-up area, length of linear buildings, etc.
Income method – includes the sum of the expected future net rental income that is discounted to present value. This method looks at real estate as an investment that brings a regular return.
Comparative method – for example, comparing the appraised apartment with another apartment in the database, while the price from the database is adjusted by coefficients of difference according to the type of property and the availability of data. The adjusted values then correspond to the multiple of the unit market price of the comparative object and the difference coefficient. Comparison with other purchase prices is laborious and requires finding out the technical condition of the individual structures, wear and tear and equipment of the real estate.
Lower marketability?
Valuation of a co-ownership interest in real estate must usually take into account its lower marketability when determining the price compared to the sale of the real estate as a whole. In the domestic market, there is practically no market for co-ownership shares in real estate, which complicates not only the sale, but also the valuation. With some exceptions, the individual co-ownership shares are not publicly traded and the demand for such parts of real estate is minimal.
Overview of documents
Among the documents required to value the co-ownership share of real estate are, for example, an extract from the real estate register, information from the real estate register, information from publicly available sources, an extract from the geographic information system, photo documentation from the inspection, a map of the area, offers from real estate agencies, orthophoto map, etc.
Appraisal for the purposes of the auction of the co-ownership interest in the real estate
The usual price of the property to be auctioned as a whole at a given time and place may be different from the calculated price of the ideal share in it being sold. It is necessary to take into account that co-ownership presents certain limitations. The price of the share cannot be determined only by calculation from the price of the entire property previously determined by an expert. Determining the resulting price must be expertly assessed, for which the institute of expert valuation is used.
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