Expert: how to avoid problems with banks when valuing real estate?

“The purchase and sale of real estate involves not only the buyer and the seller, but also the bank, while the market value of the property is determined by a certified valuer. Latvian banks are currently imposing increasingly strict requirements on all parties to a transaction, including valuers. It is important for the public to know what requirements a valuer must meet in order to avoid problems with the bank,” says Marks Tarvids, head of the real estate valuation department at Interbaltija.

How does a valuation by a certified valuer differ from a cadastral valuation, and why does the latter have little to do with market value?

Cadastral valuation is what is known as “mass valuation”—within its framework, the “average temperature in the hospital” is determined for all properties in a district. The State Land Service claims that cadastral value represents 80% of market value.

Based on my daily work preparing valuations, I can say that cadastral value may amount to 30–50%, or 150% or more, of the actual market value. It does not take into account renovations, the layout, or legal or physical encumbrances. Therefore, in practice we see that cadastral value is in fact either higher or lower, without providing a complete picture of market value.

How do certified valuers determine a property’s value? What requirements do banks impose on valuers, and why do they trust them?

To provide a comprehensive valuation, a valuer must have expertise in several fields and professions. First of all, the valuer must be a good lawyer, since the documents must be carefully examined. When visiting the property for an inspection and assessing its layout, the valuer must also be a construction expert, quantity surveyor, and architect. They must be able to determine the cost of remedying or legalising any deficiencies identified, and whether this is possible at all. Ultimately, the valuer must be an economist in order to combine all the legal and technical factors and provide a comprehensive and objective valuation of the property.

A good valuer works closely with partners—construction experts, lawyers, and architects. They can be consulted, and, if necessary, the client can be referred directly to them to resolve an important issue. For example, a valuer may not know whether a particular alteration to a property’s layout can be legalised—in that case, the architect should be called and consulted. It sometimes happens that an unauthorised alteration to a bathroom requires the consent of a neighbour or even the consent of the entire building.

The work of valuers is regulated by laws and regulations, the Latvian standard “Property Valuation,” the recommendations of the Latvian Association of Property Valuers, as well as the certification of companies and individuals.

Each bank has its own requirements for valuers, and these requirements are usually strict. In practice, banks compile and maintain lists of valuers who can be trusted, whose work is objective and complies with the requirements of laws and regulations.

How can you check whether a valuer has all the necessary certificates?

First, visit the website vertetaji.lv—there is a list of all certified businesses providing valuation services in Latvia. If you cannot find the specialist there, they are most likely not certified, and there is no point in ordering a valuation because the bank will not accept it.

The European Group of Valuers’ Associations, TEGOVA, also certifies specialists and issues the “Recognised European Valuer” certificate. This certificate enables valuers to value properties throughout Europe and demonstrates the highest level of professional quality.

What happens if a poor-quality valuation is commissioned or the bank does not accept the valuation?

The lowest risks arise when a valuation is commissioned solely for the client’s own information—if a poor-quality valuation is commissioned and the situation does not actually change, it creates a misleading impression of market value, which may in fact be either higher or lower.

In all other situations, a poor-quality valuation or a valuation prepared by an uncertified valuer will lead to headaches, financial losses, and unnecessary expenditure of time. For example, a buyer may overpay because the property is actually worth less; a seller may earn less because the property is actually worth more; a bank may refuse to issue a loan because the stated market value of the property does not reflect reality; or the opposing party may win legal proceedings simply because a poor-quality valuation was submitted.

How much do valuations cost in Latvia, and how much can be saved on them?

All properties being valued are different, so valuation costs also vary. However, in 95% of cases, private houses or standard-design apartments are valued. Such valuations usually cost approximately €110–130 for apartments and €220–280 for private houses. Differences between the prices charged by valuation companies are also small. Therefore, my main recommendation to the public when valuing real estate, businesses, or movable property is not to try to save €10 or €20, but to choose a reliable valuer who has all the necessary certificates.

A certified and experienced valuer will certainly be prepared to provide advice even before a purchase or sale transaction is concluded. It is worth taking such advice seriously, because a property may have an altered or unauthorised layout, or an unauthorisedly modified façade or windows. A valuer who works with a construction expert will inform you of this, since in such a case the building authority may require the home’s previous appearance to be restored, which in turn will require significant investment after the transaction has been concluded.

“I wish everyone only objective and successful transactions,” Marks Tarvids concludes.

Information prepared by Advanced Learning & Communications agency. www.alc.lv