Example of an apartment valuation report in Kyiv

REPORT № 649396_14092015_00203
ON PROPERTY VALUATION:
THREE-ROOM APARTMENT
AT THE ADDRESS:
KYIV, DRAIZERA ST., BLDG. 20-A, APT. XXX

Director “Valuation.Ukraine”
Certificate SOD № 14339/13 dated 13.02.2013

CONCLUSIONS ON THE VALUE OF THE APPRAISED OBJECT
1 INTRODUCTION
1.1 LEGAL FRAMEWORK
1.2 CERTIFICATION
1.3 CHOICE OF VALUATION BASIS
1.4 MAIN ASSUMPTIONS AND CONDITIONS UNDER WHICH THE VALUATION WAS CARRIED OUT
2 VALUATION METHODOLOGY
2.1 DEFINITION OF TERMS
2.2 BRIEF OVERVIEW OF METHODOLOGICAL APPROACHES TO MARKET VALUE ASSESSMENT
2.3 JUSTIFICATION OF THE METHODOLOGICAL APPROACH
2.4 FEATURES OF DETERMINING MARKET VALUE WITHIN THE COMPARATIVE APPROACH
3 GENERAL CHARACTERISTICS OF THE APPRAISED OBJECT
4 ANALYSIS OF HIGHEST AND BEST USE
5 CALCULATION OF THE MARKET VALUE OF THE OBJECT
6 REFERENCES
APPENDICES

CONCLUSIONS ON THE VALUE OF THE APPRAISED OBJECT

Appraised object:	Three-room apartment
Address of the appraised object:	Kyiv, Draizera St., Bldg. 20-A, Apt. XXX
Client:	Kruzenshtern Ivan Fedorovych
Purpose of valuation:	Determination of the appraised value for taxation purposes and calculation and payment of other mandatory payments levied in accordance with the law
Type of value:	Appraised
Executor:	“Otsinka.Ukraina”
Valuation approaches:	Comparative approach
Valuation date:	“14” September 2015
Report preparation date:	“14” September 2015
Report validity period:	Six months
NBU exchange rate:	2169.8655 per 100 US Dollars

The appraised value of the three-room apartment at the address: Kyiv, Draizera St., Bldg. 20-A, Apt. XXX as of the valuation date is:
952,260 (Nine hundred fifty-two thousand two hundred sixty) UAH 00 kopecks.

Including the appraised value of 1/4 share of the appraised object, which is:
238,065 (Two hundred thirty-eight thousand sixty-five) UAH 00 kopecks.

Appraiser:
certificate of inclusion of information about appraisers in the State Register
of appraisers and subjects of appraisal activity No. 708 dated 23.06.2014;
member of the All-Ukrainian NGO “Ukrainian Society of Appraisers”

Director of “Otsinka.Ukraina”
SRO certificate No. 14339/13 dated 13.02.2013

1. INTRODUCTION

The independent appraisal was carried out on the basis of contract No. 1409/1 dated “14” September 2015 between Kruzenshtern Ivan Fedorovych (Client) and “Otsinka.Ukraina” (Appraiser).

Information provided by the Client:

Certificate of ownership of the property dated .
BTI technical passport. Client’s passport.

1.1 Legal and Regulatory Framework

In the course of this work, the Appraiser was guided, in particular, by the following regulatory documents:

Law of Ukraine “On the Appraisal of Property, Property Rights and Professional Appraisal Activity in Ukraine” No. 2658-III dated 12.07.2001;
National Standard No. 1 “General Principles of Appraisal of Property and Property Rights”, approved by Resolution of the Cabinet of Ministers of Ukraine No. 1440 dated 10.09.2003;
National Standard No. 2 “Appraisal of Real Estate”, approved by Resolution of the Cabinet of Ministers of Ukraine No. 1442 dated 28.10.2004;
“Methodology for Appraisal of Property”, approved by Resolution of the Cabinet of Ministers of Ukraine No. 1891 dated 10.12.2003.

The appraisal process took into account the provisions of methodologies and standards adopted in global appraisal practice (International Valuation Standards (IVS)), considering the Appraiser’s experience in property valuation within Ukraine.

1.2 Certification

certificate of the subject of appraisal activity No. 14339/13, issued by the State Property Fund of Ukraine on 13.02.2013;
certificate of inclusion of information about appraisers in the State Register of Appraisers and Subjects of Appraisal Activity No. 10226 dated 12.08.2013;
qualification certificate of appraiser MF No. 7607, issued by the State Property Fund of Ukraine and KP “ICC” UTO on 10 July 2010.

1.3 Selection of the Appraisal Basis

According to the nature of the use of the appraisal results, and taking into account the specific features of the appraisal object, an appraisal basis is chosen (a set of methodological approaches, methods, and appraisal procedures corresponding to a certain type of value).

When selecting the appraisal basis, the purpose of the appraisal (in accordance with the Contract) was taken into account. Thus, market value is chosen as the appraisal basis.

Market value – the amount for which an asset should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing, wherein the parties had each acted knowledgeably, prudently, and without compulsion.

1.4 Key Assumptions and Preconditions of the Appraisal

Accuracy of Provided Information

All financial, economic, and technical information provided by the Client and obtained from available sources, whether orally or in writing (in particular regarding the technical condition and current use of the appraisal object), was accepted as accurate.

The Appraisers did not perform any special legal or technical examinations. All data regarding the characteristics (dimensions, area, volume, etc.) of the appraisal object components were obtained from information provided by the Client. The Appraisers did not conduct personal measurements of the property, relying on the accuracy of existing measurements in the technical documentation.

Legal Rights

At the time of appraisal, no information was provided by the Client regarding any restrictions on the rights to the appraised property. The Appraisers worked under the assumption that there were no such restrictions. The Appraisers do not accept responsibility for legal matters affecting the appraised property or for the title to it. Accordingly, the Appraisers make no judgment regarding such title.

Additional Work

According to the Contract and this Report, the Appraiser is not obliged to perform additional work, provide official testimony, or appear in court regarding the appraisal object unless there is a prior and subsequent agreement on this matter.

The Appraiser does not assume responsibility for updating this work in case of any changes or events occurring after the date on which this Report was prepared.

2 METHODOLOGY OF APPRAISAL

2.1 Definition of Terms

This section provides interpretations of the most important terms used in this Report, which, for various reasons, may be interpreted ambiguously. However, within this example, we will not list them so as not to distract the reader from the main topic. Interested parties may refer to the National or International Valuation Standards to study the terminology.

2.2 Brief Overview of Methodological Approaches to Market Value Appraisal

In domestic practice of market value appraisal of real estate, three approaches are used:

cost approach;
income approach;
sales comparison approach.

The use of a particular approach is determined by the actual circumstances of the specific appraisal situation.

We will not provide descriptions of the methodological approaches in this example, as this topic is covered in our other publications. We only wish to emphasize that, if sufficient reliable information is available regarding recent sales of comparable properties, the sales comparison approach provides results that most accurately reflect the market’s view of the appraisal object.

2.3 Justification of the methodological approach

The subject of the appraisal does not belong to the class of income-generating real estate, therefore the value obtained within the framework of the income approach will reflect the market value of the appraisal object with a significant number of assumptions. Therefore, the income approach is not used.

According to National Valuation Standard No. 2, the cost approach is not advisable to use for real estate objects that are not specialized and whose market for purchase and sale is not limited. Therefore, the cost approach is not used.

With sufficient reliable information about recent sales of similar properties, the comparative approach makes it possible to obtain a result that most closely reflects the market’s attitude toward the subject of the appraisal. Considering that the secondary market for residential real estate is sufficiently developed, the valuation of the object was carried out using the comparative approach.

2.4 Features of determining market value within the comparative approach

The comparative approach (sales comparison) is based on a direct comparison of the property being valued with similar real estate properties that have been sold or are listed for sale. The applicability of this method is based on:

collecting information about sales of properties similar to the one being appraised;
analyzing the information to obtain adjustment values for determining factors that affect the valuation.

It is often difficult to find a completely identical comparable property. Therefore, it is necessary to make adjustments to the price of the comparable property depending on the presence (or absence) of characteristics compared to the subject of the appraisal. The amount of adjustments can be expressed as a percentage.

The value of the property being appraised is determined as follows. First, increasing and decreasing adjustments are added separately. Then the comparable’s price is multiplied by the product of the increase and decrease coefficients.

3 GENERAL CHARACTERISTICS OF THE APPRAISAL OBJECT

Brief description of the location of the appraisal object

Information about the building where the apartment is located

4 ANALYSIS OF HIGHEST AND BEST USE

Real estate is property that can be used for various purposes (residential, administrative, commercial, industrial, storage, etc.). Since each way of using a real estate object corresponds to a certain value, before carrying out the valuation, one use is chosen, which is called the highest and best use.

The analysis of the highest and best use is carried out by checking the compliance of usage options with the following criteria:

physical possibility of use;
legal permissibility;
economic feasibility;
maximum profitability.

Physically possible use of the appraisal object. The physical characteristics described above do not impose restrictions on the option of using the property as an office or warehouse.

Legally permissible use. Using the property as an office or warehouse requires its removal from the housing stock and the assignment of non-residential premises status.

Economically feasible use. The appraisal object is located in a multi-apartment building on a floor where other residential apartments are located. The characteristics of the appraisal object, as given above, are typical for residential apartments. An office or warehouse space clearly does not meet the requirements for such properties, in particular floor location and entrance through a common-use stairwell. This circumstance makes the property unpromising and undesirable. Therefore, using it as a residential apartment is the most acceptable.

Maximum profitability. Based on the results of the analysis of the previous conditions, the option of using the property as a residential apartment can be accepted as the one that ensures its maximum value.

Conclusion: the maximum value of the appraisal object, taking into account economically feasible and legally permissible use, is achieved when it is functionally used as a residential apartment.

5 CALCULATION OF THE MARKET VALUE OF THE OBJECT

Considering that data on completed transactions (sales) are generally confidential information, the calculation uses asking prices. In this case, a bargaining adjustment coefficient (Kbarg) is applied to the obtained value of the property being appraised. This coefficient is determined by expert means based on consultations with real estate agents who have recent experience in selling similar properties to the one being appraised.

The search for comparable properties similar to the appraisal object was carried out in the secondary real estate market of Kyiv. According to the substitution principle, no more than the minimum price of a property of equal utility that is sold on the market is paid for acquiring property. This is due to the buyer’s logic— in a crisis market with a limited number of transactions, the buyer dictates the price they are willing to pay for real estate, focusing on most comparables close to the lower price range. Therefore, for the calculations, comparable properties with the minimum price were selected.

As comparables, the appraiser selected apartments offered for sale, presented below (listings are provided in the original language):

Table of comparison objects for apartment valuation

Adjustments were made based on the following indicators:

Adjustment accounting for differences in location. All comparable properties have a similar location to the appraised property, therefore no adjustment was made (0%);
Adjustment accounting for the scale factor. Large apartments have lower liquidity than smaller ones. There is also an inverse relationship between the unit value of an apartment’s area and its total area, known as the “economy of scale” law. No adjustment was made;
Differences in floor level. All comparable properties are located on middle floors, as is the appraised property, therefore no adjustment was applied – (0%);
Differences accounting for the condition of interior finishes. After telephone conversations, it was found that all comparable properties, as well as the appraised property, are in satisfactory condition, therefore no adjustment was made;
Adjustment for bargaining. Given that data on completed transactions (sales) is usually confidential information, the calculation uses asking prices, which are adjusted for the above factors. Then, the adjusted asking price of the analyzed property is adjusted by a bargaining coefficient (Kbarg). This coefficient is determined by expert judgment based on consultations with apartment sales specialists who have recent experience selling apartments similar to the appraised property. As a result of surveys conducted during the financial crisis in the Ukrainian real estate market, Kbarg can be taken at 10%.

Table. Calculation of the value of the appraised property by the comparative approach

As a result of the calculations, the unit values of the comparable properties were adjusted to the appraised property. The appraised unit value of the property was taken by the Appraiser as the arithmetic mean value.

Thus, the market value of the appraised apartment is (rounded) UAH 952,260.00.

6 LITERATURE

In preparing the Real Estate Valuation Report, the following standards, regulatory documents, sources, and data were used in particular:

Law of Ukraine “On Valuation of Property, Property Rights, and Professional Valuation Activities in Ukraine” dated 12.07.01 No. 2658-III;
National Standard No. 1 “General Principles of Property and Property Rights Valuation” approved by Resolution of the CMU No. 1440 of 10.09.2003;
National Standard No. 2 “Real Estate Valuation” approved by Resolution of the CMU No. 1442 of 28.10.2004;
Methodology for Property Valuation approved by Resolution of the CMU No. 1891 of 10.12.2003;
International Valuation Standards IVS 1–7;
Rules for determining the physical depreciation of residential buildings (Order No. 21 of the State Housing and Utilities of Ukraine dated 03.02.2009);
Internet information resources;
Financial, economic, and statistical documents and references, oral information obtained from the Client and Owner.