Assessing the reality of the chances of obtaining a mortgage loan is what a preliminary real estate assessment is for. Let us consider the essence of this issue in more detail. Perhaps the most risky undertaking for both parties, that is, for both the bank and its client, is mortgage lending. The borrowed amount amounts to hundreds of thousands of rubles, sometimes even millions, and the bank, of course, must do everything to minimize its risks. Moreover, a truly good bank will try to minimize risks for the borrower.
Property valuation
Main risks of loan non-repayment
The main risk in this case is the possible non-repayment of the loan . And here the organization providing lending services wants to be confident in the liquidity of the real estate pledged as collateral. In other words, residential or non-residential premises, a building, against which a loan was taken as collateral, and which, in the event of the borrower’s insolvency, by a court decision becomes the property of the bank, must be easily sold, and at a price that allows the bank to cover the costs of the unrepaid loan. The bank seeks to obtain real estate as collateral with a value adequate to the amount issued on credit. And understanding this desire explains why the bank and the borrower need a real estate appraisal. Property valuation is a key factor that is taken into account when deciding whether to issue a loan. Moreover, this procedure has been included in the current legislation of Russia.
Why do you need a property valuation?
Purposes of real estate valuation
Swiss Appraisal outlines the following objectives for conducting the valuation and preparing the Commercial Property Valuation Report:
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Examples of completed projects
- Assessment of the market value of built-in office space for collateral purposes
- Estimation of the cost of fixed assets for insurance and subsequent placement of risk on the reinsurance market
- Valuation of ownership rights to real estate for a foreign company representing the interests of a client
- Valuation of residential real estate for foreign tax purposes
- Assessment of built-in office premises and parking spaces for closed mutual funds
Clients for whom we have appraised properties
and other Swiss Appraisal Clients
Who is a real estate appraiser?
An independent appraiser is invited to perform the assessment and provides a report based on the results of his work. This report serves as a starting point in the bank’s decision-making process on whether to issue the borrower the amount he needs. Based on the results of studying the report, the final loan amount and the amount of interest on the loan will be determined. In addition, a report is sent to the insurance company. After all, real estate registered as collateral must certainly be insured. At the same time, the insurer also determines whether the value of the home corresponds to the amount borrowed. The report compiled by an independent appraiser contains information on the so-called liquidation and market values of the home. Liquidation value allows you to analyze the situation with the borrower's insolvency and make a fairly accurate assumption about what price the apartment can be sold for urgently. Market value represents the real value of real estate, that is, the amount that can be obtained by selling it on the market without losses associated with the urgency of the sale. The difference between these two types of value is approximately 25-30%, and when studying the appraiser’s report, banks are more interested in the liquidation value, because it is this value that reflects the most likely amount that the bank can receive, and in a short time.
How to evaluate real estate according to the new rules
Description of the profession
Subjects of valuation activities are considered to be those individuals who have received membership in any self-regulatory organization (SRO) of appraisers, and have also insured their liability.
Appraisers are involved in private individuals and institutions when carrying out purchase and sale transactions, when allocating property shares, fixing the amount of damage, to determine the potential profitability of commercial enterprises and in other cases when it is necessary to form an expert and qualified opinion on the value of an object. To do this, a specialist needs to be well versed in the subject of the examination and be aware of market trends. The final reports may be considered in court when making decisions. At the same time, the author of the report must understand that he bears not only reputational, but also financial responsibility.
To evaluate something, you need deep knowledge in a specific field, therefore, it is quite natural that experts specialize in certain industries - real estate, business, intellectual property, motor vehicles, art, etc. In addition, without experience and experience it is difficult to get a job work. Therefore, those who want to become appraisers at the first stages are ready to take positions as assistants for a modest financial reward in the hope of receiving recommendations for further employment in more profitable positions. At this time, the future specialist analyzes many other people’s reports, looks for precedents, studies analogues, goes on business trips, inspects objects, draws up his own reports - all this is included in the list of what an appraiser does when starting his personal career.
The specialist carries out his activities either in the format of private practice or by signing an employment contract with a legal entity. If a company provides appraisal services, it must include on its staff at least two employees who have fulfilled the conditions of their professional liability insurance and received a qualification certificate after passing the exam, which must also be done to become an appraiser.
Why do you need a real estate appraisal?
It is difficult for a borrower to understand the influence of a variety of factors on the final cost, much less translate this influence into a monetary equivalent, so he does not ask the question “Why is a real estate appraisal needed?” An independent appraiser will be able to take into account a lot of criteria, such as: - The first thing that is taken into account when assessing is the location of the apartment. In almost any city in the world, the cost of an apartment in the city center seriously exceeds the cost of exactly the same one, but located somewhere in residential areas, on the edge of the city. Part of the same criterion is the level of development of the area’s infrastructure, the presence nearby of social institutions such as kindergartens, clinics, hospitals, as well as shops and recreational facilities.
- The condition of the house is of great importance. The apartment can be located in a standard “Khrushchev” or “Stalin” building, it can be part of a new elite building or a relatively old panel high-rise building. It is important to know what the house in which the apartment is located was built from. Housing in a brick house will differ in cost from an apartment in a panel or monolith. In addition, the degree of wear and tear of the house plays an important role, as well as the presence of additional options, such as underground garages or parking, an elevator, a garbage chute, security, a concierge, even the number of floors of the house.
- The appraiser will also take into account the transport component. For some citizens, it is important that the road from home to work can be reached on foot, for others - that there is a public transport or metro stop within a 1-2 minute walk. For others, the convenience of getting from the yard to the highway using their own transport is no less important. With all this, the negative impact of such components as the proximity of transport interchanges or railways, tram tracks or even airports is also taken into account. The listed disadvantages can greatly affect the cost of the apartment towards its reduction.
- Housing parameters will also be taken into account. Here the floor comes first. For many reasons, our country has developed a negative attitude towards the first and last floors. The cost of such apartments compared to similar ones on other floors will be slightly lower. The area of the apartment, both total and residential, type of layout, number of rooms, condition and type of bathroom, presence or absence of balconies and loggias are also important. What matters is the side on which the apartment’s windows face, the view from these windows, and the location of the apartment in the house (corner or middle). A detailed study of all these criteria by a specialist in this field and the preparation of a report that actually reflects the cost of housing - who needs an assessment of real estate left as collateral. Only under such conditions will the bank be able to determine the exact amount of the amount that it can issue to its client.
Stages of assessing the value of a property
Let us consider the operations performed, as well as the details of each stage, as well as the necessary documents.
Order
The client contacts the appraisal organization (comes to the office or calls by phone). The appraiser asks several clarifying questions, advises the client on the type of assessment that is relevant to him, and schedules an inspection of the apartment (house).
Inspection is not a mandatory procedure for assessment by law. However, in many cases there is no way out of it.
Thus, assessing the value of a property for a bank (for a mortgage) provides for a mandatory inspection of the appraised apartment (house).
Also, when ordering an assessment, the client must provide the appraiser with the necessary package of documents in the form of copies. In some cases, copies can be provided later - during inspection. You can read more about the documents required for assessment in various cases in THIS article.
Inspection of the property
At the appointed time (the same day, the next or a week later - as agreed), the appraiser comes to inspect the apartment.
He inspects the premises,, if necessary, takes photos of the object from different angles (the house from the outside, each room separately), identifies the premises (checks the documents and the actual situation - is this the same apartment as indicated in the documents).
The assessment process itself
The next stage is calculating the estimated value of the property. The appraiser goes to the office along with the collected information, where all calculations are made.
Specialists analyze the technical condition of the apartment, the market situation in the area where it is located, select and analyze analogues located in the neighborhood, as well as its legal status (rights, restrictions, encumbrances...).
All these factors are translated into a mathematical expression, substituted into special formulas, and based on the calculation, the appraiser receives the current value.
You can read about what methods of assessing the value of real estate an appraiser uses, as well as the features of each of them, in THIS article.
Real estate valuation report
The result of the appraiser’s work is a report assessing the value of the property. This is a document that indicates the price, as well as collects all the provided source documents, and describes in detail the process of determining the cost and calculations.
The client comes to the office of the appraisal company to receive the report. In some cases, the appraiser himself sends the report to the place of request (for example, to a bank or court).
A report on the assessment of the market value of a property is a legally significant document. It can be used in any state and municipal organizations, in courts, etc.
