TEGoVA Spring General Meeting, Dubrovnik, Croatia, 16th-18th. May, 2019. Go to tegova.

org

January 2019 / Issue No. 14

European Valuer

In its most decisive win since the

Mortgage Credit Directive, TEGoVA Going beyond real
achieves insertion of a requirement estate valuation
for qualified valuers in the Covered Danijela Ilić bridges the gap
Bonds Directive with business valuation

Under the European Commission’s • defines the structural features of the At TEGoVA’s General
proposed legislation, covered bond real instrument Assembly in Athens
estate collateral did not require a valuer • defines the tasks and responsibilities for last October, the
for valuation of the property. Following the supervision of covered bonds assembled delegates
TEGoVA’s campaign, in the amendments by • sets out the rules allowing the use of the voted in favour of
s the Council of Ministers and the European Editor’s welcome “European Covered Bonds” label the development of
Parliament, this has been reversed: the • strengthens the conditions for granting European Business
valuation must now be carried out by a preferential prudential treatment of Valuation Standards
notes valuer who 05 is independent, qualified, able covered bonds under the Capital (EBVS).
and experienced.
06 “ Welcome to Requirements Regulation (CRR). In fact this was not as revolutionary as it
Covered bonds are thefinancial
May edition instruments Valuation is just one minor aspect of the seemed, as some years ago the 5th edition
embership 08
backed by a separateofpool INSIGHT.”
of assets – Covered Bonds Proposal, where initially of European Valuation Standards, EVS 2003,
tute 10
typically mortgages or public debt – to there was no more than a provision that included guidance on business valuation
orld which investors
12 have a preferential claim covered bonds are collateralised by assets and the valuation of intangible assets. At
This month, we’re emailing our
s in case of13failure of the issuer. The
membership covered
magazine to a number for which market value or mortgage lending the time, the latter served as a professional
bonds market is very ofdeveloped key professionals in thewho aren’t yetvalue (MLV) can be determined, with the framework for business and/or business and
port 14 members of the Institute, so if you are
EU. In December 2015, the outstanding
reading it for the first time, or if you’re
member states laying down rules on the real estate valuers in Europe.
p volume of15covered bonds issued reader
an ‘occasional’ by EU- valuation of assets.
who sees someone As TEGoVA must respond to the
else’s copy, why not join the IRRV and
based institutions
16 reached €2.1 trillion
find out about the many other attractions
The problem arose not from the Proposal changing needs of its members, business
and constituted 84% ofofbeing the total
directly volume
involved with thefor a Covered Bonds Directive, but from valuation subsequently fell out of favour
ssing 20
organisation that represents all involved
at global level. Covered bonds markets the changes that needed to be made to the and out of subsequent editions of EVS – for
in revenues, benefits and valuation?
25
are particularly developed in readers
Germany,
Our regular will of course be familiarCRR’s covered bond provisions for it to be almost 15 years.
with many of our contributors, who provide incisive
Denmark,26France, Spain, Italy, Luxembourg
comment and analysis – just as you would expect
in sync with the Covered Bonds Directive. Today, TEGoVA boasts 71 member
and Sweden, 28 as thoseprofessions.
countries
from haveedge of their respective
those at the leading Certain powerful economic interests are organisations – valuation associations from
Alistair Townsend is back with an
longstanding nationalexamination
regimes incase
of key place. 
law involving companydispleased with the provision in CRR that 37 countries. A considerable number of
30 voluntary arrangements, and the new enforcement
The aim of the proposed
legislation isEU underregulatory
the microscope of Jamieempowers
Waller the European Banking Authority them have individual members who practice
ch framework 32is to set minimum
and Paul Caddy.harmonisation (EBA) to develop rigorous criteria for the
Combine that with Ibrahim Hasan’s both real estate and business valuation.
intricate examination of freedom of information law
requirements that
34 all and
covered bonds
practice, and across
the practical leadership assessment
advice of MLV. They saw the chance Furthermore, new entrants to the valuation
offered by health and wellbeing guru Mark Davies, and
Europe will have to meet. This
an increase will increase
in your to eliminate it, at least concerning covered
knowledge base is guaranteed! profession are young professionals who
security for investors first and open up new bonds, by tinkering with the Covered Bonds
Peter Scrafton also makes a welcome return, with the
part of a critique of the application of ‘reasonable
wish to specialise in more than one area of
xt issue...opportunities, in particular
repair’. Onwhere markets
the lighter side, Martin Reader looksDirective
at the and the CRR. The (unintentional?) valuation and to develop additional (non-
quirkier side of rating, and our ever-popular caption
are less
Keele conference developed. competition once again proves a hit with the readership.
week drafting fallout from that was that the valuation) skills, in order to better adapt to
presents an IRRVThe proposed framework:
With many other pages of news and views both from
within and without the Institute, if you are reading
ture with a • 
difference!
provides a common definition
this magazine courtesy ofofcovered … continued on page 2, column 1,
a friendly IRRV member … c ontinued on page 2, column 1,
forwarding it to you, you really can’t afford to be out of
hnology as seen through
bonds the loop, so join the Institute today and don’t miss 1st out! article 2nd article
es. Go to http://www.irrv.net/membership/index.asp
for more information... but in the meantime, read on
and enjoy!
HT MAY 2014

1 Follow us on Twitter • www.tegova.org • To contribute to this journal, contact the Editor, John Roberts, on jcroberts54@hotmail.com
 TEGoVA Spring General Meeting, Dubrovnik, Croatia, 16th-18th. May, 2019. Go to tegova.org

… continued from page 1, column 2 TEGoVA: and in the Council of Ministers its
amendment was tabled by the Bulgarian
requirement in the CRR to use a qualified, • discovered the problem, found the government in the final week of its
independent valuer for valuation drafting solution and explained both to Presidency. 
disappeared concerning valuations linked to the Commission Parliament and Council will now negotiate
covered bonds. It would have been possible • got from the Commission, in writing, a final text of the Covered Bonds Directive
to use automated valuation models (AVMs) which is exceptional, acknowledgment of and amended CRR, based on their separate
without a valuer. the problem and a commitment to solve it amendments, but this is immaterial to
• ensured that its efforts in the European TEGoVA, as both sets of amendments are
Parliament met with the same success, satisfactory.•
… continued from page 1, column 3 input, to systemise collected information than one field of valuation. They want to
and draw conclusions, with an ability to better understand businesses by developing
the rapid changes in the global market place apply statistical tools where necessary their analytical skills, leading to a stronger
and valuation world. • ability to analyse economic cycles and awareness of the economy and specific
Today, business valuation is routinely industry-specific behaviour industry cycles. They want to develop an
undertaken by accountants, auditors, • ability to follow professional valuation ability to forecast trends and undertake “big
business advisors, financial analysts, standards, and where appropriate the data” analysis (data sourcing, data handling,
business brokers, online business valuations, legal framework for certain purposes of data manipulation and data presentation)
and merger and acquisition specialists. valuation and/or other standards, such and learn to work with mobile software.
However, the business valuation community as accounting standards and financial Furthermore, important to their business
does not have an identity, and in each reporting standards development, they want to improve their
country the field has evolved from different • ability to differentiate between various communication, marketing and networking
professional backgrounds. bases of value, their key premises and skills. They also need to learn to defend their
assumptions opinions when challenged.
“The business valuation community • ability to apply the three generally All valuers, young and old, are acutely
does not have an identity, and accepted valuation approaches aware that the future of the valuation
• ability to reconcile different indications profession lies in the flexibility of
in each country the field has
of value resulting from more than one educational programs which produce the
evolved from different professional
valuation approach multidimensional valuer. Also, the future of
backgrounds.” • ability to prepare a full valuation report small valuation firms lies in widening their
and communicate the result to the client. services and embracing new skills.
s By setting European Business Valuation Editor’s welcomeSo, what is the knowledge and skills gap Business valuation is a natural offshoot
Standards, TEGoVA will be taking the between these two fields of valuation, for valuers proficient with the complexities
first step towards shaping this side of the particularly from the point of view of the of real estate. In addition, the modern day
notes profession05and giving it true European real estate valuer? TEGoVA is currently holistic approach to real estate education
identity. Real
06 estate “and business
Welcome to valuers undertaking such a gap analysis with the provides an excellent technical and
share certain common theabilities:
May edition help of the most authoritative business analytical foundation for approaching the
embership 08
tute 10
of INSIGHT.”
• ability to follow a code of ethics and valuation educators, but it is already clear valuation of businesses in general. •
professional conduct that experienced real estate valuers can
orld • ability to
12 listen to the client and easily capitalise on their existing knowledge
This month, we’re emailing our
s understand
13 instructions
membership magazine to a number and skills. The “gap” is relatively small. Danijela Ilić FRICS REV is the Chair of the
• ability to research and analyse
of key market
professionals whodata
aren’t yet New generations of real estate valuers European Business Valuation Standards
port 14 members of the Institute, so if you are
and various other sources of valuation are already seeking to practice in more
reading it for the first time, or if you’re
Committee (EBVSC).
p 15 an ‘occasional’ reader who sees someone
else’s copy, why not join the IRRV and
16
ssing Professor Ewa Kucharska-Stasiak highlights the doubtful
20
find out about the many other attractions
of being directly involved with the
organisation that represents all involved

application of explicit cash flow models in property valuation

25
26
in revenues, benefits and valuation?
Our regular readers will of course be familiar
with many of our contributors, who provide incisive
comment and analysis – just as you would expect

28 Introduction On the other hand, A. Marshall made a

from those at the leading edge of their respective A mosaic of various national valuation
professions. Alistair Townsend is back with an
Real estate valuation
examination of key case law involving company distinction between the theory of value and methodologies has developed under
30 voluntary arrangements, and the new enforcement
methodology is rooted theory of valuation, thus contributing to the
legislation is under the microscope of Jamie Waller the influence of local conditions. The
ch 32 in economics. The development of valuation methodology.
and Paul Caddy. Combine that with Ibrahim Hasan’s difference in valuation methodologies is
intricate examination of freedom of information law
34 need for valuations had Marshall identified the three approaches to
and practice, and the practical leadership advice visible not only in detailed solutions, but
offered by health and wellbeing guru Mark Davies, and
already been noted valuation – namely the comparative, income
an increase in your knowledge base is guaranteed! also in terminology, the classification of
by Adam Smith who, and cost approaches. His contribution to
Peter Scrafton also makes a welcome return, with the
first part of a critique of the application of ‘reasonable
valuation methods, and the definition and
xt issue... when describing the the foundation of income methodology is
repair’. On the lighter side, Martin Reader looks at the interpretation of basic categories such as
quirkier side of rating, and our ever-popular caption
Keele conference week behaviour of markets unquestionable. He defined value as the
competition once again proves a hit with the readership. market value.
“The Wealth of Nations”, stated that
presents aninIRRV present value of future income (Marshall,
With many other pages of news and views both from
within and without the Institute, if you are reading
ture with a no
difference!
markets could function in an effective 1925). That said, no unified valuation
this magazine courtesy of a friendly IRRV member
forwarding it to you, you really can’t afford to be out of
hnology as manner
seen throughwithout thorough valuations. methodology has ever been established. … continued on page 3, column 1
the loop, so join the Institute today and don’t miss out!
es. Go to http://www.irrv.net/membership/index.asp
for more information... but in the meantime, read on
and enjoy!
HT MAY 2014

2 Follow us on Twitter • www.tegova.org • To contribute to this journal, contact the Editor, John Roberts, on jcroberts54@hotmail.com
 TEGoVA Spring General Meeting, Dubrovnik, Croatia, 16th-18th. May, 2019. Go to tegova.org

… continued from page 2, column 3 but by the expected volatility of the income for the RICS in 1994, contributed a lot to
stream generated by the subject property the changes in valuation methodology, as it
The development of the income approach to as a result of built-in assumptions, such recommended the creation of new valuation
property valuation as the need to carry out future renovation, methods to reduce the scope of direct
The income approach is based on the modernisation, partial or total change of use capitalisation methods. The report did not
relationship between income and value, and changes in rents paid on rent review, disqualify traditional valuation techniques,
the latter being understood as the present and the way the property is leased after but merely highlighted their shortcomings
value of future income. The approach is termination of existing leases – although (The Mallinson … 1994).
considered to be the most controversial of this “implicit cash flow” concept is mainly
the three approaches because of the different focused on demand. Supply is also relevant, Reservations concerning explicit cash flow
ways of representing income in the valuation insofar as it may affect the yield adopted in models
process, as follows: the valuation. If, at the time of the valuation, Notwithstanding the identified weaknesses
Concept 1 (Direct Capitalisation): the there are grounds to conclude that the in traditional methods of valuation, many
value represents only the current state of a supply of similar properties will increase in methodologists, when describing explicit
given property, and it is assumed that there the market, the risk related to the income, as cash flows, point to the dangers of their
is a stable income stream. It is also assumed calculated by potential buyers, will increase, use. For example, Rattermann, the author
that there is a defined balance between and so will the rates of return they require. of the popular American property valuation
demand and supply in the tenants’ market, Concept 3 (Explicit Cash Flow): the text book states, “As with every forecast,
and that the ratio between the identified value represents not only changes to the but especially in the case of the DCF
demand and the existing supply will not subject property taking place during the analysis, these predictions are different
change. forecast period, but also any income growth for different valuers. (...) the fact that it is
(or decline) caused by changes to the market necessary to anticipate changes in income
“The income approach is based environment as a result of shifts in the and expenditures, leads to discrepancies in
on the relationship between interplay between demand and supply. Such opinions” (Ratterman... ch.24).
an income stream is called “explicit cash Similarly, the authors of another
income and value, the latter
flow.” This approach entails the forecasting American textbook point to the fact that
being understood as the present
of revenue and expenditure. The months valuers do not have a crystal ball to provide
value of future income. The during which no revenues are generated a precise picture of future events (Friedman,
approach is considered to be the due to a gap between the expiration of one Ordway 1992, ch.8). They indicate that the
most controversial of the three lease agreement and the beginning of the application of these income streams requires
approaches because of the different next one are also included in the revenue analysis of demand and supply as an ex ante
ways of representing income in the forecast. The expenditure forecast estimates category. The authors point to the difficulties
s valuation process …” Editor’s welcome reasonable levels of operating costs and in estimating demand resulting from the fact
property taxes in successive years. The that estimating the future income stream is
Assuming a stable stream of income, the forecast requires adoption of macro- and affected by the systematic risk dependent
notes valuer sets05the capitalisation rate, which meso-level predictions, which are known on macro- and meso-economic conditions,
takes into06 account all“ Welcome
kinds oftorisks. as at the day of the valuation, as well as which are hard to predict. In short, the
The valuer adjusts thisthe rateMay toedition
represent changes at the micro level, i.e. in the vicinity adoption of explicit cash flows increases the
embership 08 of INSIGHT.”
the differences between the property of the property. The assumed inflation rate is valuation risk understood as the difference
tute constituting 10 the subject of valuation and also reflected in the cash flow. Assumptions between different valuations of the same
orld similar properties.
12 As emphasized by N. concerning market dynamics have influence property.
This month, we’re emailing our
s French, this 13 adjustment is subjective
membership magazine (French,
to a number not only on the volatility of the income The introduction of explicit cash flow
2006, p. 88). If it is expected that rental
of key professionals who aren’t yetstream, but also the rate of return. The models has also been met with some
port 14 members of the Institute, so if you are
rates or property values on the market will
reading it for the first time, or if you’re
volatility of income after the forecast period resistance from property valuers, despite
p change, the 15 adopted rate must imply
an ‘occasional’ reader market means that, at the stage of determining the
who sees someone strong pressure from a part of the academic
else’s copy, why not join the IRRV and
expectations 16 of growth or decline. It will
find out about the many other attractions
residual (exit) value, the capitalisation rate community, their inclusion in curricula and
be disclosed in the rate, rather
of being thaninvolved
directly in the with theand the discount rate are different. pressure from clients, including institutional
ssing 20
organisation that represents all involved
income stream. An expected future increase investors and their advisors. This was not
in revenues, benefits and valuation?
25
in the market rental rate the be familiarDirections of changes in the income
Ouris reflected
regular readers willby of course only because valuers have become used
with many of our contributors, who provide incisive
adoption of 26 a lower rate of return, whereas
comment and analysis – just as you would expect
approach to traditional valuation methods but also
a decrease28of the rental fromrate istheexpressed
those at Historically-shaped valuation methodologies
leading edge of their respective because of their belief that the valuations so
professions. Alistair Townsend is back with an
by adoption of a higher rate of
examination return.
of key case lawSuch have been constantly evolving. In the
involving company achieved are more accurate, and that the less
30 voluntary arrangements, and the new enforcement
a method can only apply when
legislation there
is under is an of JamieUK,
the microscope Waller for example, conventional methods input data used for the valuation, the lower
ch appropriate 32 number of andtransactions
Paul Caddy. Combine onthatthe (Concepts 1 and 2 above) were criticised
with Ibrahim Hasan’s the uncertainty of the valuation.
intricate examination of freedom of information law
market. 34 and practice, and the practical leadership for not directly reflecting with any precision
advice
offered by health and wellbeing guru Mark Davies, and
Concept 2 (Implicit Cashin Flow):
an increase your knowledge base is guaranteed!expected annual income growth. The latter The consequences of applying an explicit
abandons the idea of first aPeter
stable income was only reflected indirectly in the adopted
Scrafton also makes a welcome return, with the
part of a critique of the application of ‘reasonable
cash flow model in the assessment of
xt issue...stream, and recognises theOnlikelihood
repair’. of aReader lookscapitalisation
the lighter side, Martin at the rate or yield. market value and the end result
quirkier side of rating, and our ever-popular caption
variable
Keele conference income during
week a forecast
competition once again period. The weaknesses of these methods
proves a hit with the readership. The conventional valuation model, based on
presents anThe
IRRVassumed fluctuation of the income resulted in the growing interest in the direct capitalisation and/or implicit cash
With many other pages of news and views both from
within and without the Institute, if you are reading
ture with a stream
difference!is not caused by expected
this magazine courtesychanges
of a friendly in application of explicit cash flow models.
IRRV member
forwarding it to you, you really can’t afford to be out of
hnology as the
seen property
through market (demand and/or supply), … c ontinued on page 4, column 1
the loop, so join the Institute today and don’t The Mallinson Report, which was prepared
miss out!
es. Go to http://www.irrv.net/membership/index.asp
for more information... but in the meantime, read on
and enjoy!
HT MAY 2014

3 Follow us on Twitter • www.tegova.org • To contribute to this journal, contact the Editor, John Roberts, on jcroberts54@hotmail.com
 TEGoVA Spring General Meeting, Dubrovnik, Croatia, 16th-18th. May, 2019. Go to tegova.org

… continued from page 3, column 3 glance – it concerns the role of market value the assets are homogeneous and liquid.
in the real estate economy. Is it supposed The property market does not meet
flows is a demand-based model. Market to be a value which objectivises the market these conditions. This makes it difficult
analysis as at the valuation date assumes or something closer to “investment” value? to set the rates of return for properties as
that supply is constant, while demand is Where should the process of valuation components of the portfolio. The features
variable. Valuers do not analyse the demand be embedded? Should the primacy of of real property, such as a fixed location,
sensu stricto, i.e. as an ex ante category. economics be preserved in such a process capital-intensive nature, low liquidity,
They analyse the realised demand, i.e. ex or should we adopt concepts borrowed dependence on local regulations (e.g. spatial
post demand. The assessment of value is from the theory of measuring financial planning requirements or tax rates), make it
based on market evidence. Identification investments, including valuation methods difficult to treat as legitimate any attempts to
of the most common behaviour of market based on investment portfolio theory? apply financial theory to property valuation.
participants allows for an objective treatment Unfortunately, the traditional approach to On the one hand, such attempts can be
of the valuation input data, including rental valuation is increasingly undermined by the considered the result of the ambitions of
rates, vacancy rates, operating expenses, influence of financial theory. academics seeking to be innovative in
and market rates of return. Such objective The essence of the market value as preparing scientific dissertations. On the
treatment of input data makes it possible to an economic category is an attempt to other, they are the result of expectations
assess market value as defined. The adoption objectivise the market by reflecting the of investors who are often accustomed to
of an explicit cash flow model on the other most common behaviour of its participants. complex financial market analyses and
hand requires not only an analysis of the Although market participants have their do not understand, or are unwilling to
market as at the valuation date, but also a own subjective expectations and perceive recognise, the shortcomings involved in
forecast of changes in rental rates, vacancy the utility of given assets differently, through applying the same methods to property
levels and operating expenses driven by the market’s collective impact, the value valuation.
future changes in demand and supply. Thus ceases to be subjective and becomes
the application of an explicit cash flow objective. It is objectivity which determines Conclusion
model requires a wide scope of market the function of value on the market. Only The specific features of property, as well
forecasting, i.e. ex ante analysis. the value determined on the basis of as the property market itself, mean that
In terms of the assessed value itself, there economics, whose task is to objectivise the theory of market value assessment
are several consequences of the application market phenomena, makes it possible for it should be developed independently of
of an explicit cash flow model, as follows: to perform the informative decision-making the theories focused on the valuation of
• the application of an explicit cash flow and negotiation functions in the real estate financial instruments. Property valuation
model reduces the objective nature economy. The question arises as to whether should develop independently of modern
of the valuation, taking it closer to the it is appropriate to borrow the concept of day portfolio theory, remaining firmly rooted
s “investment value” of the subject property, Editor’s welcome financial asset valuation for the valuation of in economics. This means the continuing
which may meet the expectations of just a real estate. application of implicit cash flow models.
few of the potential market participants Although both kinds of income streams They allow valuers to represent the state of
notes • forecasting05 future demand and supply (explicit and implicit) are derived from the the market as at the day of valuation. •
increases 06 the risk relating
“ Welcometotothe accuracy financial concept of calculating the present
of input data. Under thean May implicit
edition cash flow value of future income, there is a significant This article is a short extract from an
embership 08 of INSIGHT.”
model, the risk of achieving the projected difference between them. The implicit cash academic paper delivered by Professor Ewa
tute income10is influenced by factors associated flow model is based on a comparative Kucharska-Stasiak at a conference of the
orld with the12subject property, such as solvency analysis, where the units of comparison Polish Federation of Valuers’ Associations.
This month, we’re emailing our
s of the main
13 tenant membership
or unfavourable magazine to a numberinclude the rental rate, expenses, and the Ewa Kucharska-Stasiak professes at the
changes in the property's neighbourhood
of key professionals who aren’t yetrate of return. Explicit cash flow models are Faculty of Economics and Sociology of the
port 14 members of the Institute, so if you are
(Friedman, Ordway,reading 1992,it for ch.8), whereas based on financial models (Henneberry, University of Łódz. ’
the first time, or if you’re
p 15 of an explicit
in the case cash flow
an ‘occasional’ reader who sees someone Crosby, 2015). The application of explicit
else’s copy, why not join the IRRV and
model the 16 risk is also systemic, being
find out about the many other attractions
cash flow models is a consequence of Bibliography
dependent on macro- of beinganddirectly
meso-economic
involved with the including real estate in portfolio theory.
ssing 20
organisation that represents all involved
conditions, which are more difficult to In the 1960s, when properties started to • French N. 2006 – Freehold Valuations:
in revenues, benefits and valuation?
25
predict (IBID, ch. 8) Our regular readers will of course be familiarbe included in investment portfolios, at the The Relationship Between Implicit and
with many of our contributors, who provide incisive
• the increased
26 number of variables,
comment and analysis – just as you would expect
request of investment advisors, the valuation Explicit DCF methods, Journal of Property
their hypothetical
28 nature
from thoseand reduced
at the leading of properties in the USA was based on the
edge of their respective Investment and Finance, Vol. 24, No 1, s.
professions. Alistair Townsend is back with an
objectivity translateexamination
into a ofhigher key caselevel of company
law involving concept of financial investment valuation. 8791
30 voluntary arrangements, and the new enforcement
valuation uncertainty legislation is under the microscope of Jamie Such Waller a valuation model assumes that • Friedman P, Ordway N. 1992 – Income
ch 32
• such valuation uncertainty
and Paul Caddy. leads
Combinetothat with Ibrahim Hasan’s
market information covers all the qualitative Property Appraisal and Analysis, Prentice
intricate examination of freedom of information law
an increase
34 in discrepancies
and practice, and between
the practical leadership expectations
advice of market participants (the Hall, New Jersey
offered by health and wellbeing guru Mark Davies, and
valuations. an increase in your knowledge base is guaranteed! market is effective), assets are liquid,
investment decisions are driven by rational
Peter Scrafton also makes a welcome return, with the
first part of a critique of the application of ‘reasonable

xt issue... The essence of changes inOnthe concept ofReader lookseconomic behaviour, and investors always
repair’. the lighter side, Martin at the
quirkier side of rating, and our ever-popular caption
determining
Keele conference week income competition
streamsonce again proves a hit with the readership. strive for maximisation of profit and
presents anThe
IRRVdiscussion on thewithin application of the minimisation of risk. Such assumptions
With many other pages of news and views both from
and without the Institute, if you are reading
ture with a difference!
income approach to property this valuation
magazine courtesy hasIRRV member
of a friendly can be considered realistic only in markets
forwarding it to you, you really can’t afford to be out of
hnology as seen
much through
deeper roots than apparent at thetoday first where … continued on page 5, column 1
the loop, so join the Institute and don’t miss out! financial instruments are traded and
es. Go to http://www.irrv.net/membership/index.asp
for more information... but in the meantime, read on
and enjoy!
HT MAY 2014

4 Follow us on Twitter • www.tegova.org • To contribute to this journal, contact the Editor, John Roberts, on jcroberts54@hotmail.com
 TEGoVA Spring General Meeting, Dubrovnik, Croatia, 16th-18th. May, 2019. Go to tegova.org

… continued from page 4, column 3

Jeremy Moody
• Henneberry J., Crosby N. –
Financialisation, the valuation
To contribute to provides a bag
of investment property and the
urban built environment in the this journal, contact of current topics
UK Urban Studies, http://dx.doi.
org/10.1177/0042098015583229 the Editor, of note for the
• The Mallinson Report: Key Findings, RICS
1994
John Roberts, on
New Year
• Marshall A. 1925 – Zasady ekonomiki, t.1.
Wyd. M. Arcta, Warszawa
• Rattermann M. 2013 – The Student jcroberts54@hotmail.com This note reviews some
Handbook to The Appraisal of Real Estate, of the issues for valuers
13th Edition (Appraisal Institute). across Europe from
changing markets and
legislation.

TEGoVA to set European Business

Valuation Standards. Krzysztof Grzesik Some residential valuation points
As well as working on general support for
residential property valuation, the EVSB has
reports on this key development been looking at more detailed issues which
might be found by valuers, whether for
For many years TEGoVA valuation or undertake both real estate transactions, taxation, compulsory purchase,
has resisted calls for the and business valuations. Most of those development assessments, lending or other
addition of guidance on associations are based in Central and South- needs. Three are raised here. Comments and
business valuation to Eastern Europe, where the separation of experiences from TEGoVA members would
its European Valuation real estate and business valuation is not as be welcome.
Standards. This is marked as in Western Europe. Furthermore, • Rented property – with current market
because the TEGoVA a desire to diversify into business valuation pressure in many areas on rents, there is a
s membership has Editor’s been welcome has become noticeable amongst the swelling tide of regulation on let housing.
made up of associations whose members younger generation of real estate valuers in Berlin and Dublin have introduced
specialise in real estate valuation. Amongst particular. rent control policies that then bear on
notes them are many05 individuals who can be And yet, on a continent where real valuations. Issues for the valuer include the
described06as top experts
“ Welcome in real to estate estate valuation is highly regulated at both potential to achieve vacant possession and
valuation. TEGoVA could the May notedition
claim to speak EU and national level, business valuation how far the rent is depressed below market
embership 08 of INSIGHT.”
authoritatively about business valuation nor is a “free for all”, with little in the way of levels. Other regulation may add to costs or
tute 10 to any top business valuation
could it point on the ground guidance to independent restrictions.
orld experts within
12 its ranks. valuers. Also, the public interest in Europe • Multiple and assignable interests –
This month, we’re emailing our
s 13 membership magazine to a number is not being well served by an industry with a valuer might not only have to value a
of key professionals who aren’t yetill-defined methodology and qualifications. simple owner-occupied property but a
port
“The exponential
14
growth of
members of the Institute, so if you are
TEGoVA over thereading last itdecade for the first has Top end business valuation activity in
time, or if you’re
variety of situations, such as:
p 15 an ‘occasional’ reader who sees someone Europe has been largely the preserve of the - the interest of one of two or more joint
transformed its membership to 71
else’s copy, why not join the IRRV and
16 big accountancy firms, who have primarily owners – how is that assessed?
associations across find 37 countries.
out about the many other attractions
of being directly involved with thepromoted the principles-based International - the effect of matrimonial interests
ssing Whilst most 20 still focus
organisation onthat real represents all involved
Valuation Standards, which do have a - collective ownership
estate valuation,
25 some 15 have
in revenues, benefits and valuation?
a
Our regular readers will of course be familiarsection on business valuation. These firms - usufruct
significant 26 number of members
with many of our contributors, who provide incisive
comment and analysis – just as you would expect
no doubt fill in the detail with excellent in- - where there is a longer lease, the interest
who specialise
28
infrom
business valuation
those at the leading house training, experience and guidelines.
edge of their respective of the landlord or of the tenant
professions. Alistair Townsend is back with an
or undertake both real ofestate
examination key case law and But where does that leave the more
involving company -  the value of an assignable lease
30 voluntary arrangements, and the new enforcement
business valuations.” legislation is under the microscope of Jamiemodest Waller real estate valuation firms and self- - different shareholdings in a company
ch 32 and Paul Caddy. Combine that with Ibrahim Hasan’s employed independent valuers who wish owning a property.
intricate examination of freedom of information law
34 and practice, and the practical leadership to become proficient in business valuation?
advice Each may raise issues about access to value,
offered by health and wellbeing guru Mark Davies, and
All that has now changed. an increase The exponential
in your After all, you don't need an accountancy
knowledge base is guaranteed! risk, return, cost and improvements to be
growth of TEGoVA over the last decade qualification to become a business valuer.
Peter Scrafton also makes a welcome return, with the
first part of a critique of the application of ‘reasonable
assessed on their own facts.
xt issue...has transformed its membership
repair’. On the lightertoside,
71Martin Reader looks at theThese days, many valuers have gained • Equity release – valuations where an owner
quirkier side of rating, and our ever-popular caption
associations
Keele conference week across 37 countries.
competition once againWhilst real estate related degrees which have
proves a hit with the readership. grants a mortgage to release value as
presents anmost
IRRV still focus on real estate valuation, followed a modern day holistic approach, retirement income from housing, with the
With many other pages of news and views both from
within and without the Institute, if you are reading
ture with a some
difference!
15 have a significant
this magazinenumber
courtesy ofofa friendly IRRV member
forwarding it to you, you really can’t afford to be out of
hnology as members
seen through who specialise
the loop, join the Institute today and don’t …
insobusiness miss 
cout!
ontinued on page 6, column 1 … c ontinued on page 6, column 2
es. Go to http://www.irrv.net/membership/index.asp
for more information... but in the meantime, read on
and enjoy!
HT MAY 2014

5 Follow us on Twitter • www.tegova.org • To contribute to this journal, contact the Editor, John Roberts, on jcroberts54@hotmail.com
 TEGoVA Spring General Meeting, Dubrovnik, Croatia, 16th-18th. May, 2019. Go to tegova.org

… continued from page 5, column 2 … continued from page 5, column 3 valuations, but aspects of this have long
been part of the work of agricultural valuers.
including the teaching principles of lender taking the secured value from the Land is a factor of production worked by the
accounting and financial analysis – and property on death (“equity release”; viager farmer, not just the premises where business
many Recognised European Valuers (REVs) in France) is now of concern to these is conducted.
already have the skills required for business lenders (often insurers) and regulators. With French regulation controlling its
valuation. While the property can be valued as it farmland market, the CEF has developed
stands, equity release mortgages have a valuation model which includes the
“The pressure on TEGoVA to fill their own risks. How might the value economics of the farming business as a
the "European" void on business vary in future with the issues (such as the weighting factor in valuation.
property’s condition) and conflicts (for
valuation had become too great
example where the house is worth less “In the UK, there is a long history
to ignore and in response to the
than the loan) that might arise? How are of valuing the improvements and
clear demand, the TEGoVA General these handled between lender, owner
Assembly at its meeting in Athens fertility created by one user of the
and valuer? Regular revaluation might be
last October, with near unanimity, land and available to the next.”
required.
approved the development of
European Business Valuation Housing land valuations In the UK, there is a long history of valuing
Standards (EBVS).” With the strong sense of too little housing the improvements and fertility created by
for a growing population, the UK is one user of the land and available to the
debating not only how to bring more next. We have had to understand and value
The pressure on TEGoVA to fill the land forward faster but also valuation the assets created by policies, such as the
"European" void on business valuation issues. How might the value of land with European Union’s Common Agricultural
had become too great to ignore and in permission be used to fund affordable Policy, including transferrable rights to
response to the clear demand, the TEGoVA housing, other infrastructure and works? support payments and the former milk
General Assembly at its meeting in This bears directly on the value that can quotas, each with their effects on markets.
Athens last October, with near unanimity, be achieved by the landowner. While the We are now looking at the valuation aspects
approved the development of European costs of housing land to a developer with of the increasing focus on environmental
Business Valuation Standards (EBVS). all those charges could be 40% of the final issues, with new legislation, charges,
In this connection, a 12-person EBVS sale value, the original landowner might opportunities and markets.
Committee, chaired by TEGoVA Board not see a third of that. The irony is that A wider range of possible business
Member Danijela Ilić REV, has been policy makers see land as expensive but the structures, whether partnerships or joint
s established. The Committee membersEditor’s are welcome residual return to the landowner is limited. ventures between owners and farmers, all
top business valuation experts drawn from require valuations. Where a company, rather
Austria, Bosnia and Herzegovina, Bulgaria, “This exposes the difference than individuals, owns a farm, it has to
notes Germany,05Ireland, Latvia, Lithuania, be valued, as do the shareholdings in that
between market value, with all
Netherlands,
06 North Macedonia,
“ Welcome to Poland, business, whether they give control or not.
its hopes of possible uses, and an
Romania, Serbia, Ukraine the May and the United
edition
embership 08 of INSIGHT.” approach founded on existing use
Kingdom. Retail property valuations
tute 10 be made clear, however, that
It should
value – or highest and best use, as The retail sector is seeing great pressures for
orld despite this
12 new initiative, TEGoVA still traditionally defined.” change, with rising internet sales (now over
This month, we’re emailing our
s considers13 the disciplines of realmagazine
membership estate to a number 20% of UK non-food sales; prospectively
valuation and business of keyvaluation
professionals to be who aren’t yetMost shades of political opinion are 40%) and changing consumer behaviour.
port 14 members of the Institute, so if you are
quite separate, requiring different
reading it for the first time, or if you’re
now intent on reducing that return to the That may change the markets for different
p knowledge, 15 training and skills, albeit
an ‘occasional’ reader who sees someone landowner and so are reopening a debate types of retail property with valuation
else’s copy, why not join the IRRV and
in many respects
16 related. The stand-
find out about the many other attractions
last seen in the UK in the 1950s about consequences, as for transactions advice,
alone publication of EBVSof beingwill directlyprovide
involved with thethe basis for valuation (especially where lease terms, investors or lending. As in
ssing 20
organisation that represents all involved
the opportunity for our members with a there might be compulsory purchase). This most periods of financial change, this will
in revenues, benefits and valuation?
25
business valuation interest to readers
contribute tobe familiarexposes the difference between market test valuers, especially where there may be
Our regular will of course
with many of our contributors, who provide incisive
and develop26 the standards over the coming
comment and analysis – just as you would expect
value, with all its hopes of possible uses, less current market evidence. Depending
years. In the
28 meantime,
from TEGoVA willedge
those at the leading seek and an approach founded on existing
of their respective on the circumstances, the EVSB’s work on
professions. Alistair Townsend is back with an
to develop educational programmes
examination of key case law aimed
involving companyuse value – or highest and best use, as Valuation Certainty and Market Risk in EVS
30
•
voluntary arrangements, and the new enforcement
at REVs who wish to legislation
fill the knowledge
is under the microscopegapof Jamietraditionally
Waller defined. In the early days of 2016 (EVIP 2) may be relevant.
ch which would32 enable and them to diversify
Paul Caddy. Combine thattheir the UK’s comprehensive planning in the
with Ibrahim Hasan’s
intricate examination of freedom of information law
professional
34 activities. •
and practice, and the practical leadership 1950s,
offered by health and wellbeing guru Mark Davies, and
advice that difference led to such distortions
an increase in your knowledge base is guaranteed! in behaviour that the law affirmed a market
value basis in 1959. That is now under
Peter Scrafton also makes a welcome return, with the
first part of a critique of the application of ‘reasonable

xt issue...
repair’. On the lighter side, Martin Reader looks challenge,
at the with the risk of repeating past
quirkier side of rating, and our ever-popular caption
Keele conference week problems.
competition once again proves a hit with the readership.

presents an IRRV
With many other pages of news and views both from
within and without the Institute, if you are reading
Jeremy Moody Hon REV is Secretary and
ture with a Krzysztof
difference! Grzesik REV is Chairman of Agriculture and business valuations
this magazine courtesy of a friendly IRRV member Adviser with the Central Association of
forwarding it to you, you really can’t afford to be out of
hnology as TEGoVA.
seen through TEGoVA is now discussing business Agricultural Valuers (CAAV).
the loop, so join the Institute today and don’t miss out!
es. Go to http://www.irrv.net/membership/index.asp
for more information... but in the meantime, read on
and enjoy!
HT MAY 2014

6 Follow us on Twitter • www.tegova.org • To contribute to this journal, contact the Editor, John Roberts, on jcroberts54@hotmail.com