Scope of the Valuation Methods in Spain (II)

Scope of the Different Methods for the Valuation of Properties in Spain (II)

Spanish Order ECO/805/2003

The rules established by Spanish Order ECO/805/2003 for the valuation of  real estate apply whenever the appraised value is used for any of the following purposes:

• mortgage warranties for loans that are or will be an integral part of the portfolio issued by the kind of entities described in the R. D. 685/1982, developing aspects of the Law 2/1981, about regulation of the Mortgage Market in Spain
• determination of a fair value for the purposes of the registration and second valuation standard in the Accountability Plan of insurance and reinsurance companies (R.D. 1317/2008), and determination of the valuation of assets for the purposes of the Law 20/2015, about management and supervision of insurance and reinsurance companies in Spain
• valuation of the assets of the real estate collective investment institutions regulated by the Spanish Royal Decree 1309/2005, approving the Regulation of the Law 35/2003, about Collective Investment Institutions in Spain
• valuation of the property assets of Pension Funds (R.D. 304/2004, approving the Pension Fund Regulation in Spain).

If the purpose of the valuation is among those listed above, the assessment can be made by the following technical methods:

• Method of the Cost: for the valuation of all types of buildings and building elements, whether in project phase, under construction, already finished or during a rehabilitation process
• Method of Comparison: for the valuation of all types of properties, provided that the requirements set out in Article 21 are met
• Method of Income Update: for the valuation of all kinds of properties susceptible to produce income, provided the requirements set out in Article 25 are met
• Residual Dynamic Method: for the valuation of urban or developable land, built or not, and of buildings in design phase, construction phase or during a rehabilitation process, no matter if the works are paralyzed
• Residual Static Method: for the valuation of plots and buildings during a rehabilitation process where the construction or rehabilitation works are entitled to begin within a period not exceeding one year, and also built plots.

Rules for the Valuation of Properties According ECO/805/2003 (V)

Valuation Rules According ECO/805/2003 (V)

Statement of the Values. Checks. Land Area. Mortgage Value. Intermediate Valuation.

When valuing a Real Estate in Spain, the values should be stated in a report and, where appropriate, a Certificate of Valuation.

Minimum Checks

The valuation of a property requires to perform all necessary checks to know the characteristics and the actual condition. Among the checks that should be performed, the following ones should always be included:

• physical identification of the property, through its location and visual inspection, checking if its floor area and other characteristics match the description
• identifying all visible servitudes
• conservation status or condition
• occupancy status
• use or exploitation intended for the property
• public protection regime, if it’s about housing
• architectural heritage protection regime
• agreement of the property with all applicable urban planning regulations
• where applicable, availability of right to the valued urban use.

Land Area

In order to calculate the value of a land or a country estate, the area to consider should be checked by the appraiser. If this testing is not feasible, the appraiser should use the lowest value between the Registry Area and the Cadastral Area.

Definition of Mortgage Value (VH)

The Mortgage Value or VH (‘Valor Hipotecario’, in Spanish) is defined as the value of the property as determined by a prudent valuation, taking into account all market conditions, the use at the time of the valuation and any possible alternative uses.

Definition of Intermediate Valuation

The Intermediate Valuation of a construction work is any of the valuations that are issued after the initial valuation and during the construction or rehabilitation process of a building or an element of a building. The Intermediate Valuation reflects the progress of the works and the percentage of work performed, but its issue does not involve the updating of the values ​​contained in the initial valuation.

Rules for the Valuation of Properties According ECO/805/2003 (II)

Valuation Rules According ECO/805/2003 (II)

Valuation Entity. Updating. Rehabilitation. Antiquity.

In Spain, the Valuation Entities are:

• in general, Valuation Companies approved and registered in the Special Registry of the Banco de España
• for valuations aiming at the mortgage warranty of loans that are or will be part of the coverage of mortgage titles issued by institutions, developers and builders described by the Spanish Royal Decree 685/1982, the Valuation Services of loan entities approved and registered in the Special Registry of the Banco de España.

Updating

Updating a valuation is to review a valuation issued by a Valuation Entity before two years from the date of issuance, or three if the purpose of the valuation is to cover the technical provisions of insurance companies required by the Spanish Royal Decree 2486/1998. The updating can modify the warnings, the conditions or any of the values.

Rehabilitation

A building in rehabilitation is a building, or an element of a building, which has started some works that meet the following requirements:

• they are being performed under a building permit
• they are being performed according to a set of Construction Documents endorsed by the Architects' Association
• they affect at least a 50 per cent of the floor area, involving the improvement of the living conditions (replacing, restoring or upgrading constructive elements or installations) or a substantial alteration of the morphology of the building
• the construction cost reaches, at least, a 50 per cent of the gross replacement value of the building, excluding the value of the land.

In the valuation of an entire building in which a partial reform is being performed, the definition of rehabilitation may be applied to the affected part if the works cover, at least, a complete storey.

Antiquity

For the correct interpretation of the Order ECO/805/2003, the antiquity is the number of years between the date of construction or complete rehabilitation of the property and the valuation date.

Architect Daniel Trujillano

http://www.arquitectotrujillano.com/valuation/home.html

Valuation Reports for Real Estate Properties in Spain

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.

Architect Daniel Trujillano
http://www.arquitectotrujillano.com/valuation/home.html
Valuation Reports for Real Estate in Spain