REAL ESTATE VALUATION

It is very important to consider that the procedure for valuating real estate is influenced by the purpose for which such work is carried out. Thus, the definition of value for notarization of sale or gifting is largely different from the work of the appraiser to prepare documents for litigation. But let’s take turns about everything.

Carrying out a valuation of real estate is a rather voluminous question. Although from the point of view of the customer there is absolutely nothing complicated in this, and you can easily figure it all out. For the convenience of information perception, we structured our rather large article.

Content of the article:

• 1. What is the difference for what you need a property valuation
• 1.1. Valuation of real estate for a notary
• 1.2. Determining the value of property for the court
   
• 2. How much is the service, what documents are needed
• 2.1. Is a technical passport required for the evaluation and sale of real estate
• 2.2. What to do if there are no documents for real estate
   
• 3. What is the result of appraiser’s work
• 3.1. What is the validity period of the appraiser report
   
• 4. Are there state real estate appraisers in Ukraine
   
• 5. How to determine the value of real estate
• 5.1. Whether the condition of the property, the availability of furniture and household appliances will it be taken into account
• 5.2. What to do if the estimated value is more than real
   
• 6. What taxes when selling and gifting real estate in Ukraine

1. What is the difference for what you need a property valuation

According to the requirements of the law, any expert valuation of real estate has a purpose. This purpose is necessarily indicated in the documents that are the result of the work. And these documents themselves can be legally used only for this specified purpose.

For example, if the valuation of real estate is made to calculate the size of the court fee, then it cannot be used by a notary to re-register ownership. In addition, it is the paperwork for different purposes is different. So for a notary, the appraiser determines the estimated value of the property, and for litigation or accounting – the market. The differences, of course, do not end there, but we will not focus on these details within the framework of this article. It is simply important for the customer to understand that for different purposes there are different procedures and options for processing documents of the real estate appraiser.

The most frequent cases when it is necessary to conduct an independent valuation of real estate are two main:

1. Valuation of real estate for a notary.
2. Determination of the value of property for presentation in court.

Of course, the work of the appraiser is in demand in many other cases. But these two seem to account for more than 95% of all work. Therefore, we will dwell in more detail on them.

1.1. Valuation of real estate for a notary

The need for valuation in the re-registration of real estate in Ukraine is no longer news to anyone, since such an order has existed for about 10 years. Determination of market value is required in order for the notary to be able to calculate from her the amount of taxes and mandatory payments that by law accompany the transaction. You can read more about how much it costs to re-register real estate in Ukraine at the bottom of this article.

All types of real estate are evaluated for a notary:

• Apartments, rooms, shares in them. The simplest work of a real estate appraiser. Most apartments are located in typical houses, so it is not difficult to determine their market value. Your home costs about the same as for sale similar in the same area and in a similar type of house. It is clear that the valuation takes into account the condition of the property, the floor of the apartment and other factors. But these are the details.
• Individual residential houses. The main feature of the valuation of the house is that it does not “hang in the air,” but is located on the land plot. Therefore, when drawing up contracts of sale for house ownership, the notary asks for two valuations: separately for the house and separately for the land plot. For many years there have been talks and legislative initiatives about not separating the house and land with different documents. However, while these are formally two different real estate objects, which nevertheless cannot be sold separately from each other.
• Land plots of all purposes. Determining the value of land also has its own subtleties. Especially when it comes to land for commercial purposes or densely built-up area, where not sold free from buildings areas.
• Built-in rooms of different types: offices, shops, garages, manufacturing, warehouses, etc. As a rule, such work is much more complicated in comparison with the estimates of residential real estate. Premises, unlike apartments, are not so often sold. At the same time, if you do not take into account garages, each such object can be unique in its own way. That is why appraisers approach such work individually at the stage of negotiations with customers.
• Detached buildings and special engineering structures. If your task is to evaluate such an object, you are welcome to call us. Determining the value of such real estate has too many subtleties and nuances. Therefore, the consultation of the appraiser can only be individual with reference to the characteristics of a particular object.

In general, the valuation of real estate for a notary is the simplest job for the appraiser. It is quite formal, so usually no one has any questions with such works.

1.2. Determining the value of property for the court

Once again we want to emphasize that the execution of documents for a notary and the valuation of real estate for presentation in court are, as they say in Odesa, two big differences. In addition to the features of the procedure of the work itself and the design of its results, there is another significant nuance.

Valuation for a notary, as a rule, no one checks. After registration of the transaction, this document safely goes to the archive. And can be extracted from there only if this property will appear in any criminal proceedings.

Real estate valuation for the court is a completely different story. Such documents lawyers of your opponents consider with all care. And they cling to everything, up to com. to show and prove to the court that the work of the appraiser was done poorly, and the document itself cannot be used as full-fledged evidence in the case. In principle, all this is logical and correct. Indeed, including on the basis of real estate valuation, the court decides in favor of a particular party. Therefore, these documents must be prepared flawlessly.

This explains the fact that real estate appraisers, specializing in the preparation of documents for litigation, have a higher qualification compared to tax appraisers. Moreover, many appraisal firms do not undertake work that will be considered in the courts.

The most common valuation of real estate for the court is required in such cases:

1. Determination of the court fee. As a rule, such work is needed when the customer does not have a full-fledged set of documents for the property. Or there is no way to organize the access of the appraiser to inspect the property. That is, an assessment is needed to start a lawsuit – to file a claim and pay the court fee.
2. Division of property during divorce proceedings. This work is possible if the customer has documents on real estate in his hands. With the subsequent conclusion of an agreement with the appraiser, inspection of the object and photographic recording of the condition of the interior decoration of the premises. It often happens that at the initial stage there are no documents or access for inspection. Then the document is drawn up, as to determine the size of the court fee. A full assessment is carried out by subsequent court decision, obliging the second party to provide the appraiser with documents and access to real estate.

2. How much is the service, what documents are needed

In this comment, we will provide more detailed pricing information for this service.

Usually, clients who first apply for a property valuation believe that only the type of property and its location affect the valuation price. However, in addition to this, a significant impact on the determination of the cost of work and on the actual valuation procedure is also influenced by the purpose of the valuation, that is, what this valuation will be used for. Also, a significant impact on the cost of work has who owns the property: an individual; a legal entity; or is in state or municipal ownership.

Let’s try to briefly outline the principle of pricing.

Purpose of expert valuation. Possible options: for the conclusion of a contract of gifting, registration of inheritance, for sale, to determine the size of the court fee, to determine the value of the division of property in court, for registration of a mortgage agreement, for presentation at the embassy, for registration of a contract of lifetime maintenance, etc.
Reports on property valuation for tax purposes it is necessary to register in the database of the State Property Fund of Ukraine. Confirmation of such registration is the identification number indicated on the title page or on the cost conclusions. Most notaries do not require such registration for donation or inheritance when it comes to next of kin. Registration is mandatory if the valuation is for sale.

A separate place is taken by the valuation of real estate, which is in state or communal ownership. It is important to understand that such property valuation passes the review procedure (i.e. approval, verification) either in the regional branches of the State Property Fund of Ukraine, or in the Office of Communal Property, or another subject of valuation activity writes a review. The procedure for conducting and approving such valuation is significantly more complicated, and its cost is affected by where the report will be reviewed. Features of such procedures are given on our website in the section evaluation of non-residential real estate.

Also, the cost of our work is influenced by the factor of how typical this property is for the area in which it is located. Here is an example from real estate valuations in Kyiv: it is often quite difficult to determine the cost of a warehouse in the central part of Kyiv, and the cost of a warehouse, for example, on Vydubychi or Kurenivka, is determined without problems. This is due to the fact that in the center of any city there are usually very few warehouse and industrial premises, so it is not clear with which property they can be compared to determine the market value. Of course, there are methods for solving such issues, but such work is more complicated, and, accordingly, it costs more.

The price of the value determination service also depends on the type of property and the purpose of the valuation:

• Apartments and premises, garages, land plots
• For the notary – 1500 UAH, 1 day.
• For court – from 2500 UAH, 1-2 days.
• Residential buildings with land plots
• For the notary – 3000 UAH (1500 UAH house + 1500 UAH land), 1 day.
• For court – from 3000 UAH. 2 days.

Prices for real estate appraiser services when working with non-residential premises or detached buildings are determined individually. Each such work has its own specifics and can be either quite simple from the point of view of determining market value, or a completely non-trivial task. Hence the different cost of services depending on a particular situation and property.

To carry out a valuation of real estate in the general case, the following documents are required:

1. Ownership documents. According to the requirements of the legislation, the customer of the valuation can only be a person related to the property. Therefore, ownership documents not only contain information about the address and main characteristics of the property, but also provide a legal basis for an independent valuation. The right establishing documents can be: a contract of sale or donation, a certificate of ownership, a court decision, an extract from the state register of rights to real estate, etc. If it is necessary to conduct an valuation for the court, the customer may not have documents for ownership. In such cases, the valuation is still carried out, but the procedure and form of registration of the results of work differ from the standard forms of documents.
2. Technical passport. This document contains detailed characteristics of the property. In addition to the room plan, it contains additional important data, such as materials of the main structural elements and information about engineering communications. As well as the characteristics and dates of commissioning of additional buildings and structures, if it is a question of home ownership or industrial property.

Quite often it happens that for one reason or another the customer does not have a technical passport in his hands. Can real estate appraisers do without it? Or before valuating it is necessary to make it?

2.1. Is a technical passport required for the evaluation and sale of real estate

As with other issues of real estate valuation, much depends on the purpose of such work: for a notary or for a court.

Technical passport most often is not mandatory document in the notarial re-registration of ownership of real estate. The only exception is the initial registration of built objects. As well as new individual properties, resulting from the division of one object into several others. For example, when dividing in kind one residential building into several owners.

If you must have a notarized re-registration of ownership of real estate, we advise you to agree in advance on a list of necessary documents. Moreover, it is with the notary whom you chose to draw up the transaction, or someone who has a hereditary case. In practice, it happens, the requirements of different notaries for a package of documents may differ.

If we are talking about preparing documents for the court, then it is clearly impossible to answer the question of the need for a technical passport. Here you can cite several theses:

1. The presence of a technical passport will allow the real estate appraiser to do the work as efficiently as possible.
2. The missing technical passport will necessarily raise questions and often justified doubts of your opponents about the quality of the assessor’s report.

Thus, if you want to approach the matter in detail and competently, we advise you to make a technical passport and provide it to the appraiser for work. Moreover, it is possible to produce such documents today in private offices, and not only in state BTI.

Another question is if it is impossible to make a technical passport at this stage for one reason or another. What to do in this situation?

2.2. What to do if there are no documents for real estate

In practice, there are often situations when there are no documents for real estate, but an valuation is needed in order to file a lawsuit. Cases can be different.

The most common option is that when dividing the property of the spouses during the divorce process, the second party does not give the documents. Less common are similar situations with documents when entering into the right to inheritance by court order.

If there are no documents, but the valuation of real estate is required, then the appraiser draws up the documents in a special way. All parameters and characteristics of the property (often approximate) are taken from the words of the customer. If during the trial it turns out that these data do not actually correspond to reality, then the court appoints a re-valuation or examination.

Valuation of property without documents has a number of features. However, in practice, our appraisers carry out quite a lot of such works, which are easily accepted in the courts.

3. What is the result of appraiser’s work

According to the Law, one of the types of results of the work of the real estate appraiser is evaluation report. This type of final document is produced in all cases, except for some exceptions related to litigation.

The structure and content of the valuation report is also regulated by law. Without going into unnecessary details, you can highlight the main sections of this document.

• Title page and content. On the title, the head of the valuation company puts his signature and the seal of the company.
• Cost summary page. The main page that is of most interest to the customer and other users of the document. In addition to the value determined as a result of the work, other important data is necessarily indicated here. Name of the object, its characteristics, type of determined value, purpose of the valuation. Conclusions about the cost are signed by the real estate appraiser and the head of the appraisal company.
• Introductory part. The introduction describes the main provisions, various restrictions and techniques that were used in calculating the value of real estate. There should also be specific sections with an analysis of the most effective use of the property, its usefulness and the justification of the chosen approach to determine the value. And, of course, a detailed description of the state and characteristics of the object of evaluation.
• Calculation part. From the title it is clear that this part of the report provides all the considerations and calculations of the appraiser, which eventually led to one or another conclusion about the market value of real estate.
• Addition. The final section attaches all documents and data that were used by the appraisers, including photos. As well as permits for an independent valuation of both the specialist and the appraisal company.

The finished valuation report for the notary is numbered and stitched with threads.

3.1. What is the validity period of the appraiser report

Validity period of real estate valuation for presentation at the notary is six months from the date of valuation.

For cases of preparing documents for the court, the validity of the appraiser’s report is not explicitly regulated by law. In practice, lawyers often focus on the same six months. However, adjusted for the fact that during this time there were no significant changes in the real estate market. Such changes may be associated with a sharp change in exchange rates, as in 2008 and 2014. Or with the outbreak of hostilities in February 2022. If such force majeure occurred, the court will most likely ask to update the valuation on a closer date.

When valuating state and municipal property for lease or privatization, there are also regulated periods of validity of the appraiser’s report. However, such cases are quite specific, interested in a rather narrow circle of people, and therefore go beyond the scope of this article.

4. Are there state real estate appraisers in Ukraine

As you know, in our country there are both state and private notaries. Many of the customers are interested in whether there is a similar situation with appraisers. Are there state appraisal organizations in Ukraine? Let’s look into it.

By law, the valuation can be carried out by an appraiser who works in the state of the appraisal company. Unlike a notary, an appraiser cannot engage in professional activity simply as a physical self-employed person. Only in the company, which is called the subject of evaluation activities. As we wrote above, the conclusions about the cost are signed by two people: the appraiser and the head of the company.

There are no state valuation companies in Ukraine. However, there are appraisers, including of real estate, who work in government agencies and institutions. However, such appraisers will not conduct for you either valuation of real estate for a notary, or prepare documentation for the trial. After all, they have other functional tasks.

We can look, for example, on appraisers who work in the State Property Fund of Ukraine. Both in the main department and in its regional branches. The main task of these specialists is to check the quality (review) of reports of other appraisers when renting state property. As well as the preparation of documents for the privatization of property of state enterprises.

The same situation with real estate appraisers working in the departments of communal property of Kyiv or other large cities. Their function is to check the quality of valuation used when concluding lease agreements. They cannot legally provide real estate valuation services for other purposes.

5. How to determine the value of real estate

Determining the value of property of different types has its own characteristics. Also quite specific is the valuation of real estate for re-registration of real estate at the notary. Let’s talk about everything in order.

Brief information. There are three approaches to determining the value of real estate:

1. Price comparison. The most obvious and adequate approach to valuate most types of real estate. For example, to understand how much your apartment costs, just look at the ads on the Internet, for how much similar objects are sold. It is this approach that appraisers use when working with typical apartments, residential buildings and land plots. A comparative approach gives the most accurate result when working with typical common real estate objects.
2. Comparison of rental rates. This method is used when evaluating non-residential premises, such as small offices in business centers or retail premises. And also when evaluating detached buildings, various industries and warehouses. That is, where there is not enough information about the sale of similar objects. But there is enough data on rental rates for this property. The transition from rent to cost is carried out on the principle of a bank deposit. Knowing the amount of monthly interest payments, you can calculate the size of the deposit itself.
3. Construction costs. It would seem logical that the market value of the property is equal to the cost of its construction minus depreciation. However, in most cases, this approach cannot be applied by appraisers. For example, for an apartment it is impossible to determine the costs of its separate construction. But even where the cost approach can be applied, for example, residential buildings, it often does not give a real picture of market value. Firstly, it is not a fact that someone needs an object with such characteristics in a particular area. The market value will be lower than construction costs. And secondly, with dense urban development, it is often impossible to find a free land plot for development. Therefore, the market value of such an object may be higher than the estimated cost. There is a direct prohibition of legislation on the use of a cost approach to determine the market value of real estate. Except in special cases, when it is absolutely impossible to do without it.

At the same time, determining the value of real estate for a notary has its own characteristics. There is a state register in which a special program calculates the value of real estate, based on its main characteristics. That is, for your apartment, land and house in the register there is already some automatically determined estimated value.

When preparing documents for a notary, real estate appraisers are required to register reports in this register. Otherwise, the notary will not accept the documents in the work. And you can register the value of the property only within 25% of the figure determined by the program. Thus, if, according to the register, your property costs 1 million UAH, then the minimum that the program will miss from the appraiser will be 750 thousand UAH. This problem is especially relevant during the war of 2022, when the registry data can be significantly overstated. After all, the program for the most part “focuses” on pre-war prices.

Therefore, when valuating real estate for notarial re-registration, appraisers are forced to somehow focus on the register of the State Property Fund described above.

At the same time, documents for the court do not need to be registered. Therefore, in this case, incidents with low or excessive “automatic” value do not arise.

5.1. Whether the condition of the property, the availability of furniture and household appliances will it be taken into account

It is important to understand that the value of real estate is determined taking into account its inherent improvements. Here we mean repair (condition of decoration), built-in furniture and equipment for engineering systems. That is, the built-in closet can be taken into account, but the usual bed in the general case is not. Also with air conditioning or boiler unlike the refrigerator and microwave.

The following question immediately arises. How to be in the course, for example, a lawsuit about the division of property, if expensive furniture and equipment is not considered part of the property. The answer is quite simple. Valuation of furniture and household appliances is a separate work. In this case, the market value of real estate is determined separately from the value of other property. Also, customers should know and pay attention to the fact that special permits of the appraiser are required to evaluate furniture and equipment. Not the same as for working with real estate.

As for determining the impact of built-in furniture and equipment on the cost of an apartment or house. When valuating real estate appraisers do not count separately each such unit of property. But as objects for comparison, housing is chosen with similar repair and complete set of household appliances.

5.2. What to do if the estimated value is more than real

Above we wrote that when preparing documents for a notary, appraisers are forced to focus on cost in the state register. This cost is calculated by the program automatically. And the result may be, to put it mildly, not adequate. In this case, the appraiser can register his report only within plus or minus 25% of this figure. And she, in turn, may be many times more than the real market value of real estate.

It must be said that for typical real estate in large settlements, for example, for apartments in Kyiv, such problems are quite rare. But in settlements remote from regional centers, alas, are often found.

We approach each such case individually. The occurrence of such situations is visible to the appraiser at the initial stage of work. Therefore, companies that value their reputation immediately inform the client about such a problem. And do not put it before the fact when the work is already fully done.

In general, each such case should be discussed individually. It is important to emphasize that such situations can arise only when evaluating for re-registration of real estate with a notary, since these reports require registration. In the case of preparing documents for the court, inadequate cost may indicate either a low professional level of the appraiser, or his conscious desire to distort the real picture.

6. What taxes when selling and gifting real estate in Ukraine

Many of our customers are interested in the question of how much it will cost to re-register the property. After all, everyone knows that any transaction at the notary is accompanied by significant costs. Of course, it is best to find out the exact information about future expenses directly in the notary office. Better yet, go through several of them to choose the most suitable option for you. You will be surprised, but different notaries can call different amounts. Which sometimes differ quite significantly.

What costs should be during the conclusion of the contract of sale and donation, or when entering into inheritance rights to real estate. Let’s divide the mandatory payments into groups and each of them will be briefly described separately.

• Notary services. It is at this point that there may be a significant difference between different notaries. We will not delve into this “kitchen,” we will only say that such services are often called “state duty.” And often private notaries, by analogy with state notaries, want to get 1% of the transaction amount from the client. While their other colleagues paperwork is much cheaper. Go through a couple of notary offices before the transaction. So you can significantly save on costs.
• Real estate appraiser services. Information about the cost of our services is painted above in the text. For a typical residential property it is 1500 UAH.
• Income tax. Please note that this type of tax is paid by the seller of real estate. The tax rate depends significantly on various factors. What type of real estate transaction is carried out, what is the period of ownership of property, what is the degree of kinship in the donation or inheritance, and whether one of the parties to the contract is a foreign citizen. Depending on the totality of these conditions, the income tax rate for registration of rights to real estate may be 0%, 5% or 18% of its estimated value.
• Military fee. The rate of this tax is 5%. The obligation to pay it arises almost always. Except for the case of donation or inheritance, if all parties are close relatives and citizens of Ukraine. Military fee is paid by the seller.
• Pension fund. This mandatory payment is 1% of the estimated value of the property. Occurs only during sales transactions and is paid by the buyer.

Here’s how it all looks in tabular and structured form.

Since there are a lot of such nuances, so to clarify the price of valuation, you are welcome to call us! We will be happy to answer on all your questions. Please note that we provide services not only in Kyiv and Kyiv region, but throughout Ukraine.