Launch of European Valuation Standards (EVS) 2020
Interview of Krzysztof Grzesik, Chairman of TEGOVA, and Michael Reinberg, Chairman of the European Valuation Standards Board
Interviewer You’ve issued these standards eight months into pandemic-led economic free-fall. Did it have an influence?
KG It hasn’t so much influenced the drafting of the Standards as the focus and interest of the reader, because our profession and the standards that underpin it are never more vitally relevant than when the economy and real estate are in free-fall. Gone are the false certainties about value. Vanished, the faith in algorithms crunching out-of-date data. Badly shaken, the confidence of so many that they could gauge the market for themselves. In crisis, valuers come into their own, relying on their experience, intuition and intimate local market knowledge to ascertain value.
Interviewer There’s a strong sense that the crisis is twofold: viral and climatic, with some even making a link. Has climate warming impacted your standards in any significant way?
KG Yes, because EVS are developed in lock-step with the EU legal order and 2020 was the year that the Union set itself the goals of carbon neutrality by 2050 and a 55% reduction in GHG emissions by 2030. The fact that buildings account for 36% of EU GHG emissions led to EU-mandated national Long-term Renovation Strategies, several of which contain legal obligations to renovate a building to a higher level of energy efficiency by a fixed date or at a certain inflection point (e.g. rental, sale) creating an unavoidable major cost impacting value.
Accordingly, EVS 2020 upgrades energy efficiency valuation to Standard status and advises valuers to integrate these clear regulatory costs into their determination of Market Value. It’s only the beginning of a complex valuation process, but it’s a sea change for a necessarily conservative profession. It is our duty to not politicise the process of determining value, but if three years from now your building’s energy rating literally takes it off the market, you have a valuation issue.
Interviewer A lot of people, even in the property industry, don’t always ‘get’ the point of valuation or understand how valuers reach their conclusions. Have the new standards addressed this issue?
MR That concern permeated four years of work with the prime objective of providing standards that are relevant and easily comprehensible to valuers, clients and the public authorities. All sections were reviewed in that light, and all new parts passed through that filter including:
· Greater clarity on the key concept of Market Value, compensating flaws that have crept into various language versions of EU law;
· A common European Valuation Report for Residential Property;
· New Guidance Notes and Information Papers on subjects of real interest to practicing valuers;
· Clarification of the role of advanced statistical models in line with the new Guidelines of the European Banking Authority;
· A comprehensive approach to Valuation Methodology including detailed exposition of key concepts such as income approach and depreciated replacement cost;
· A unique, landmark exposé of EU Legislation and Property Valuation enabling practicing valuers to understand how much of the real estate regulatory environment is based on EU law, equally valuable to European and national supervisory authorities, policy makers and academics.
It was a collective effort based on a clear concept of the needs of society and the future of the profession.