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Towards European standardised residential real estate valuation procedures

Michael Reinberg (left) and Krzysztof Grzesik
Michael Reinberg (left) and Krzysztof Grzesik

A move has been announced which would bring standardisation to the valuation process in European residential real estate. The European Group of Valuers’ Associations (TEGOVA), which numbers 72 national valuers’ associations from 38 countries representing 70 000 qualified valuers (either self-employed or employed by specialist consultancies, private sector companies, government departments or financial institutions both local and international) is launching this initiative. Known as the European Valuation Standards (EVS) its goal is to bring reliable standards for the valuation of residential immovable property for mortgage lending purposes in the EU Mortgage Credit Directive.

Krzysztof Grzesik, Chairman of TEGOVA and Michael Reinberg, Chairman of the European Valuation Standards Board, outline what they see as the advantages of this scheme: “EVS 2020 enhances European valuation practice with greater clarity on the key concept of Market Value, compensating flaws that have crept into various language versions of EU law”. Among other benefits, they go on to say, it provides: “Energy efficiency valuation upgraded to Standard level, a comprehensive approach to Valuation Methodology including detailed exposition of key concepts such as income approach and depreciated replacement cost and clarification of the role of advanced statistical models in line with the new EBA Guidelines.”

Impact on building valuation of EU goals towards carbon neutrality

EVS are developed in lock-step with the EU legal order and 2020 was the year that the Union set itself the goals of carbon neutrality by 2050 and a 55% reduction in GHG emissions by 2030. The fact that buildings account for 36% of EU ghg emissions led to EU-mandated national long-term renovation strategies, several of which contain legal obligations to renovate a building to a higher level of energy efficiency by a fixed date or at a certain inflection point (e.g. rental, sale) creating an unavoidable major cost impacting value.
Accordingly, EVS 2020 upgrades energy efficiency valuation to standard status and advises valuers to integrate these clear regulatory costs into their determination of market Value. It’s only the beginning of a complex valuation process. If three years from now the building’s energy rating literally takes it off the market, you have a valuation issue.

There will also be new Guidance Notes and Information Papers on subjects of real interest to practicing valuers and a clarification of the role of advanced statistical models in line with the new Europan Banking Authority Guidelines.
Tim Harrup
12-11-2020
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