Thursday, 18 December 2014

Rules for the Valuation of Properties According ECO/805/2003

Valuation Rules According ECO/805/2003

Spanish Order ECO/805/2003. Purpose, Scope and Principles.

The Order ECO/805/2003 establishes the rules for the calculation of the value of real property in Spanish territory, and for the preparation of reports and certificates for the formalization of the valuation. The purpose of these rules is enhancing the technical and formal quality or the valuation reports, in order to better protect the interests of third parties. The order establishes a single structure with a minimum number of points that the valuer must complete.

Purpose of the Order ECO/805/2003

One of the objectives of the Order ECO/805/2003 is the regulation of the legal regime applicable to the calculation of the value of real estate in Spain, and the preparation of reports and certificates for its formalization.

Scope of the Order ECO/805/2003

The Order ECO/805/2003 applies if the purpose of the valuation is any of the following:
  • mortgage warranty of loans that are or will be part of the coverage in mortgage titles
  • coverage of the technical provisions of insurance companies
  • determining the assets of collective investment real estate entities
  • determination of the real estate assets of pension funds.

Valuation Principles

When a valuation company or valuation service acts for any of the purposes that make up the scope of the Order ECO/805/2003, it must fulfill the following principles:
  • principle of anticipation: if the property is in economic exploitation, its value is based on the expectations of the income it will likely provide in the future
  • principle of purpose: the purpose of the valuation determines the method and the techniques
  • principle of highest and best use: if the property is liable to be dedicated to different uses, its value shall be the result of destining it to the best one in economic terms
  • principle of probability: if there are several reasonable scenarios, the most likely must be selected
  • principle of proportionality: the valuation reports should be developed with appropriate amplitude according to the importance, the use and uniqueness in the market
  • principle of caution: if there are several equally likely scenarios, the one which provides lower value must be selected
  • substitution principle: the value of a property is equivalent to the value of other similar assets that could replace it
  • principle of temporality: the property value varies over time
  • transparency principle: each valuation report must contain all the information necessary for easy understanding, and must describe the assumptions and documents used
  • principle of residual value: the value attributable to each of the production factors of a property is the difference between the total value and the value that can be attributed to the rest of the factors.

Valuation Reports for Real Estate in Spain

Architect Daniel Trujillano
Valuation Reports for Real Estate in Spain

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