REAL ESTATE MARKET AND VALUATION PROCESSES

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1 REAL ESTATE MARKET AND VALUATION PROCESSES Edited by Sabina Źróbek 2013, Zagreb, Croatia

2 Scientific Council: Prof. Vlado DADIĆ Ph.D. Dsc., Institute of Oceanography and Fisheries, Split, Croatia Prof. Wojciech WILKOWSKI Ph.D. Dsc., Real Estate University in Warsaw, Poland Ph.D. Dsc. Katarzyna SOBOLEWSKA-MIKULSKA, Warsaw University of Technology, Faculty of Geodesy and Cartography. Department of Cadastre and Land Management, Warsaw, Poland Ph.D. Dsc. Grażyna SZPOR, Faculty of Law and Administration, Cardinal Stefan Wyszynski University of Warsaw, Poland Ph.D. Vlasta BEGOVIĆ, Institute of Archaeology, Zagreb, Croatia Ph.D. Agnieszka DAWIDOWICZ, University of Warmia and Mazury in Olsztyn, Department of Real Estate Resources, Olsztyn, Poland (secretary) Ph.D. Małgorzata GAJOS, University of Silesia, Faculty of Computer Science and Materials Science, Institute of Computer Science, Sosnowiec, Poland Ph.D. Małgorzata LESZCZYŃSKA, University of Warmia and Mazury in Olsztyn, Department of Geodesy, Olsztyn, Poland Scientific Editor of Monograph: Prof. Sabina ŹRÓBEK Ph.D. Dsc., University of Warmia and Mazury in Olsztyn, Department of Land Management and Regional Development, Olsztyn, Poland Reviewers Board: Ph.D. Dsc.Radosław WIŚNIEWSKI, University of Warmia and Mazury in Olsztyn, Department of Land Management and Regional Development, Olsztyn, Poland Ph.D. Zvonko GRŽETIĆ, Hydrographic Institute of the Republic of Croatia - Split, Croatia Published by: Croatian Information Technology Society GIS Forum, Zagreb, Ilica 191e, Croatia University of Warmia and Mazury in Olsztyn Olsztyn, Oczapowskiego 2, Poland University of Silesia, Katowice, Bankowa 12, Poland Editor: Davorin KEREKOVIĆ, prof., Croatian Information Technology Society GIS Forum, Zagreb, Croatia Copyright Croatian Information Technology Society GIS Forum, Croatia University of Warmia and Mazury in Olsztyn, Poland University of Silesia, Poland All rights reserved International Standard Book Number: ISBN Nacionalna knjižnica, Zagreb, Croatia

3 Authors Adamczyk Tomasz, Adamiczka Jerzy, Bieda Agnieszka, Budzyn ski Tomasz, Dąbrowski Janusz, Jasińska Elz bieta, Kucharska-Stasiak Ewa, Parzych Piotr, Rączaszek Andrzej, Sajnóg Natalia, Trojanek Maria, Źróbek Sabina, Żurek Sławomir REAL ESTATE MARKET AND VALUATION PROCESSES Edited by Sabina Źróbek 2013, Zagreb, Croatia

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5 Contents Introduction Market value of the property in Polish and global perspective and its accounting Evolution of the notion of property market value in Polish valuation practice Methods of revealing the potential of the property in the process of market value estimation Valuation of properties left on the territory lost due to military operations Methodical aspects of property market analysis Prediction of transaction prices with using of time series* The influence of administrative decisions on the development of commercial retail properties market Analysis of the real estate market in consolidated areas Regression tree model as a tool for credit decisions GIS as instrument of property market research Application of GIS spatial analysis for mapping of average prices of dwellings The map of land prices and the land value map in Poland and chosen European countries Properties as revenue sources for municipalities in Poland Second League the world s smaller demographic potentials with population count ranging from that of Poland to 100 million References Notes of the Authors

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7 INTRODUCTION The transformation period in Poland have been accompanied by significant changes of ownership relations and structures. The privatization processes required, among others, defining the rules of property valuation and understanding the definition of market value. It is very important because this category of property value is used in many market processes and in the business trading. Many ideas how to define the meaning of market value can be found in the international professional standards and in the literature and legal regulations. In Poland, this type of value is defined in the Act on Real Estate Management. It should be added here, that in the EU directives many references to this kind of value can also be found. In the process of property valuation, it is necessary to understand the property market, particularly the decision making mechanisms that operate within it. Valuation means assessing the value for particular purposes and is strictly related to the type of the assignment, i.e. the value of the specific right to real estate in order to take decision on buy or for compensations for lost properties as the result of the Second World War. Property valuer must learn to accurately assess the potential residing in property just as the buyers and investors do. This scientific monograph mainly focuses on: 1. evolution of the definition and interpretation of the market value of the property in Poland 2. methods of revealing the potential of the property in accounting its market value 3. problem of compensations for lost territories due to result of the Second World War case of Poland 4. methods of and ways of: a) considering influence of time on real estate value, b) determining influence of administrative decision on commercial retail properties market, c) analysis of the property market in consolidated areas. Information about the value of land and about the average price of land is very important in the process of land management. In this monograph one can find the concepts of preparation of the maps with the spatial distribution of these data. For a significant numbers of banks the appraisal report of the property is needed. Regression tree model would be in this case used as a tool of credit decision. Properties are important revenue source for municipalities budget. The changes in the level and their structure occurred after 2003 when a new Act on local governments revenues was passed are described. At the end of publication an analysis concerning demographic potentials and changes in growth dynamics are presented. prof. Sabina Źróbek Scientific Editor 1

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9 1. MARKET VALUE OF THE PROPERTY IN POLISH AND GLOBAL PERSPECTIVE AND ITS ACCOUNTING 3

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11 1.1. EVOLUTION OF THE NOTION OF PROPERTY MARKET VALUE IN POLISH VALUATION PRACTICE Abstract The aim of the study was to present the evolution of the definition and interpretation of the market value of property in Poland as well as showing problems in the stage of understanding and acceptance of this value concept. Their source is an institutional dimension of the market, including its customs and habits, a slowly changing awareness of both the theoreticians as well as practitioners. The study pays attention to the complexity of the value category which results in the fact that the legal regulations or regulations in professional standards do not have to be understood in the same way by people performing the valuations and also their recipients. We can use a uniform definition and its interpretation in the scale of a given country (or even the globe), but understand the category differently which is obviously reflected in the defined level of the value as the result of valuation. Lack of understanding of this category influences the valuation result, decreasing its usefulness in the business trading. Keywords: market value, highest and best use, hope value 1. Introduction The beginnings of a transformation period in Poland have been accompanied by significant changes of ownership relations. Introduction of market rules has sparked privatization processes. Moving towards market economy has required valuation from the point of view of an exchange phase, which is defining the market value. A definition and understanding of this category in Poland have been subject to major changes. The aim of the study is to present not only the evolution of definition and interpretation of the market value of property but also to present the influence of customs, habits, resistance in the change of awareness in assimilating this value concept. Moreover, the study is to show complexity of the value category which causes that law regulations or in professional standards do not have to be understood in the same way by people performing valuations and also by their recipients. We can use a uniform definition and its interpretation at the national level (and even the globe), but understand the category differently, which is obviously reflected in the defined value level as the valuation result. A proper understanding of this category influences the valuation result, determining its usefulness in business trading. 2. First definitions of market value and their influence on valuation practice The privatization processes required defining the rules of property valuation. Due to a long legislation process, already in 1994 the Ministry of Spatial Development and Construction published Temporary Rules of Property Valuation, recommending their implementation. Based on British standards, the market value was defined in this document as the most probable price possible to be obtained in the conditions of a free market, with the assumption that: - parties of the transaction are independent and neither of them is acting under compulsion, - property is exposed on a free market long enough, taking into account the nature of rights towards the property and market condition, - transaction parties are aware of advantages and disadvantages of the property, - there are no special conditions restraining a free operation of the market ( Temporary Rules... ), Still, no explanations of the definition were provided which must have caused taking into account the complexity of this category lack of its understanding and free interpretation in practice. A year later, in 1995, the first definition in the light of law appeared. The legislator gave this category a marginal importance in the directive on detailed rules of establishing the property value it has been decided that the market value of property shall be understood as its predictable price possible to be obtained on the market. (Directive...). It constituted a significant narrowing of the market value concept provided in the previous valuation methods. In valuation practice, such a formulation gave broad interpretational possibilities. 5

12 3. Definition and interpretation of market value in the light of Professional Standards from 1995 An almost a milestone for the Polish valuation practice was a publication of the first Professional Standards of Property Valuers adopted by the professional organization in For the first time, the basic rules of property valuers professional practices were regulated. Their aim was to standardize the professional practice of people organized in associations being a part of the Polish Federation of Property Valuers Association, harmonizing the rules of conducting activity in the area of valuation by Polish property valuers with the ones which are commonly binding in highly developed countries, promoting uniform rules of conduct which are binding in the circles of property valuers influencing developing their professional and civil-law responsibility as well as shaping requirements and expectations of people ordering valuations towards those who perform them, securing the interest of the ordering parties by formulating requirements that valuations should meet and enabling carrying out a valuation of a particular valuer s activity with applying objectified criteria, such as standards. A catalogue of objectives shows that they have been of significant importance not only for the valuers but also for the recipients of the valuations. The standards were in compliance with requirements of the European Group of Valuers of Fixed Assets TEGOVOFA (presently TEGoVA). In the process of their establishing regulations on property valuation in the United States, Canada and Great Britain were significant. One of the standards, standard III, was devoted to a definition and interpretation of market value of property as a basis of the valuation. The standards introduced two values: the market value and replacement value, called a replacement cost decreased by wear and tear. British experience has had the biggest influence on the shapes of the adopted definitions 1. The property market value has been defined as: its most probable price possible to be obtained on the market taking into account the following assumptions: a) parties of the agreement are independent from each other and they are acting rationally, not being driven by certain motives, b) they have a firm intention of reaching the agreement, c) they are aware of co-existing circumstances influencing the property value, d) they are not acting under pressure, e) the period of required display of the property on the market has passed, with applying an appropriate advertisement and time required for negotiating conditions of the agreement, taking into account the nature of the property and market condition. This definition is much broader from the one included in the directive on detailed rules of valuation, it also introduces some new elements in comparison with the definition included in the Temporary Valuation Rules. First of all, it assumes that the parties are acting rationally, not being driven by particular motives, second of all it introduces the requirement of the firm intention of concluding the transaction. Rationality of behaviours means making decisions on the basis of the present condition of the market and eliminating speculative behaviours. Adopting the requirement of the firm intention of concluding the transaction apart from the assumption that the parties are not acting under pressure eliminates market data reproducing the so-called amateur prices, relatively high and occasional prices, relatively low. This means that the seller is not looking for a special customer of property who is willing to pay more than others and the purchaser is not looking for special occasions, namely property sold under pressure. For the first time, a value interpretation has been provided. It was still scarce, which must have decreased the practical usefulness of the standard. The standard stated for example that: - an expert should assume that selling the property takes place on the day of valuation, - the established value of the property has to reflect the market condition on the day of valuation and correspond to a price which could be obtained while reaching an agreement of sale and in the period of the property exposition on the market and in the period of agreement negotiations the prices have not changed, - the agreed market value of the property should not be increased by the certified property valuer by a sum corresponding to taxes and fees that a potential buyer of the property will be obliged to pay in connection with its purchase. In particular, VAT is such a tax. An extremely important regulation of the standard was the following formulation: Market value should define the anticipated value that a property may have for a way of using other than the one on the day of valuation, then, if there was an offer on the market to purchase this property for another, 1 One of the main authors of the study was Kris Grzesik, member of RICS - British professional organization. 6

13 specified way of its using. In relation to this regulation, five kinds of market value have been distinguished: - market value for the present use, - market value for an alternative use, - market value for an optimal use, - market value for a forced sale, - market value for a future sale. The kind of market value adopted by the certified property valuer resulted in particular from: a) stipulations of the agreement with the entity ordering a valuation survey, b) purpose of making the valuation. c) condition of the property market and particular conditionings of a given property. Each kind of value received an additional explanation in the standard. Market value for the present use was defined with adopting an assumption that the property would still be used in accordance with its present use. It took into account value changes connected with expansion, redevelopment of buildings and development of free areas. The authors of the standard wrote that this kind of value may be applied mainly in valuation of property occupied by an enterprise for its own purposes, with an assumption that the enterprise will be continuing its operation in a foreseeable future. In accordance with the definition, the market value for an alternative use reflected a prospective using of the property for purposes other than the present ones. It should not constitute a basis to establish the value of property occupied by an enterprise for its own purposes if the enterprise continued its operation and the alternative use could be carried out only by liquidation, winding up or transfer of the enterprise to other space or to another property. Market value for an optimal use meant a special market value variant for an alternative use. It is based on establishing the value with an assumption of an additional condition of the most effective and best use of the property which is real and in accordance with law, physically possible, financially feasible and providing the highest value. It should be applied in particular for valuation of non-developed lands designed for development. In accordance with the standard, in defining the value for an alternative and optimal use, the certified property valuer has to base on particular pieces of information or data justifying the possibility of such a use. He may not adopt unjustified or unrealistic assumptions. In practice the three first values have been accepted, the two remaining ones, which constitute departure from definition assumptions of the market value (abandoning the assumption of performing a transaction with no pressure and abandoning an assumption that the value is defined on the day of valuation) have not won the certified property valuers approval. One of the arguments was certainly difficulties with defining and justifying the result of the valuation. Another argument was the fact that it would be difficult to treat them as market value. From the first three kinds of value a definite priority was obtained by the value of the current use. From the perspective of almost 20 years, a part of professional circles in Poland has been aware that the concept of market value for the present use was not properly understood in Poland and also that it was abused in practice. We have not paid attention and have not understood the aforementioned interpretation that this kind of value may be applied especially in valuation of property occupied by an enterprise for its own purposes, with an assumption that the enterprise will be continuing its operation in a foreseeable future. It was conceived by the author of the definition that this kind of value should constitute a basis for the valuation when the present use corresponds to the best use as well as to define the value for the purposes of financial statements 2. Common acceptance in practice of the value for the present use has lead to decreasing the value of appraised property, clearly influencing obtaining lower transaction prices. 2 On a seminar, organized in Cracow in 2012 by RICS and the Polish Federation of Property Valuers Association, the author of the market value definition, Kris Grzesik, apologized the professional circles that he had suggested us this kind of value, not knowing that then there had been no requirement of valuation for financial statements in Poland. 7

14 4. Statutory definition of the market value The basic definition of the market value can be found in the Act from 1997 on Property Economy. It is defined as...a predictable price, possible to be obtained on a market, set with taking into account transaction prices obtained having fulfilled the following conditions: - parties of the agreement were independent from one another, they were not acting under pressure and had a firm intention of reaching the agreement, - time necessary to expose the property on the market and negotiate the agreement conditions has passed. The definition is only ostensibly a repeat of the regulation included in the professional standards. The seemingly insignificant changes introduced by the legislator cause that it does not reflect the essence of this category properly, since: - it does not refer to the need for defining the value on the day of valuation, which constitutes its considerable substantive drawback. The value, regardless the scope in which we are using this notion, is always of a dynamic nature, which means that it is subject to continuous changes. Its definition requires defining a particular date for which it is identified, - the definition indicates the valuation methodology, since it quotes transaction prices as data, taken from the property market; the definition should not refer to methodology 3, - while defining market conditions of concluding a transaction the legislator used past tense instead of the present:...the parties were,...the parties were not acting,...they had. The regulation is still referring to the methodology of valuation, imposing removing market information from both exceptionally low as well as high prices. Getting rid of bargains and amateur prices constitutes a process of looking for typical, most frequent prices occurring on the market in order to objectivise its participants behaviours. The process of removing data should not constitute an element of the definition. Using the past tense is not correct, since the value as the most probable price refers to a future transaction, therefore it has to specify future conditions of its concluding. This means that a specific value could be deemed as the most probable price, if parties of the transaction are independent, are not acting under pressure and have a firm intention of its concluding. It is puzzling that all attempts to correct the legal definition, undertaken by theoreticians, have been to no avail. The professional organization has not taken a stance on this issue, which may suggest that practitioners pay more attention to the valuation methodology than to definitions, they use the value category without its understanding. This point can be proven by marginal treatment of the value category in literature on the rules of valuation (E. Kucharska-Stasiak, 2012). 5. Influence of International Valuation Standards on the market value definition in Europe 5.1. Highest and best use concept A spur to further changes in the market value interpretation in Poland was the seventh edition of International Valuation Standards in 2005 which showed the requirement to define market value with assuming the optimal use, in Polish literature called as the highest and best use. The notion of the optimal use was deemed as a fundamental and integral part of the market value estimate. It is worth emphasising that in the discussed standards in Changes Introduced between the Sixth (2003) and Seventh (2005) edition of IVS no attention is paid to the correction of market value interpretation. On developed property markets the rule of the highest and best use (IVS 2005, pp.9-10) has been the fundamental rule of valuation for years. The concept of the highest and best use has been commonly used in valuation in the USA since The highest and best use means an actually possible, properly justified, legally acceptable, financially feasible and providing the highest value of the appraised asset. This rule reflects typical, that is most frequent, behaviours of the market participants. Under one of the fundamental rules of valuation, the rule of anticipation, a typical investor purchases an asset for benefits that can be derived in the future from its possession. The highest and best use concept has been maintained in further editions of IVS in 2007 and It needs to be emphasised that the condition of optimal use, as the only possible use of a property, introduced in 2005 by the International Valuation Standards constituted a breakthrough 3 Theoreticians of valuation, especially in the United States, criticised the definition of the replacement value, pointing out that this is not a definition of the value category but only a description of reaching the value. At present, the International Valuation Standards as well as European Valuation Standards are not using this category. 8

15 in understanding of this category. In many European countries, following the example of British regulation, the market value could be defined as the value for the present, alternative but also optimal use. The present use could be the best use but did not have to be. Such a divergence could take place in defining the value for the purpose of financial statements assuming that an enterprise will be continuing its activity in a foreseeable future. This means that the optimal way constituted one of the possible assumptions on the property use. Already in 2000 TEGoVA approved the concept of the optimal use stating that...the use which is not legally acceptable or physically possible cannot be deemed as optimal. The use, meeting both the condition of legal acceptability and physical possibility may require a convincing explanation that adopting this very use is likely and properly justified. Having proved, by means of analytical deliberations, that one or more uses are possible, conclusions should be verified by means of a feasibility study. Such a use which leads to achieving the highest value is an optimal use and that is why the value for the optimal use is a notion analogous to the market value definition (EVS 2000). Searching for the highest and best use has been deemed as the core of valuation. With the IVS 2005 publication it was established that there is one market value, defined with assuming the highest and best use. The present use can be the best use. Assuming the highest and best use has been deemed as fundamental in the international valuation procedure and is strongly emphasised in literature of the subject. Numerous authors underline that the highest and best use concept is fundamental in the valuation process and should be preceded with choosing the valuation method (Lennhoff, Elgie, 1995). Choosing the optimal use is therefore seen as the most important decision made in every appraisal. The optimal use is a starting point of the valuation process and making a valuation survey. This use is to reflect the behaviour of market participants. This is the best from the most likely uses of a property. It has been agreed that an analysis of the optimal use is not some secret knowledge but...a logical, common-sense process, repeating actions that a typical purchaser would take while analysing the property in question. The majority of property is used in the most rational way, since the majority of owners will be doing what is: legally acceptable, physically possible, financially profitable, of highest yield. In other words, a statement that the majority of property on a given market is already used most rationally as developed property is not unusual (Rattermann 2009). International Valuation Standards Committee (IVSC) has obliged membership countries to adopt and observe the definition and interpretation of market value: Membership countries are obliged to inform IVSC about any significant differences between national and international standards, so that the international community could be informed about the differences (IVS 2005). The Committee agreed that is case of... differences, certified property valuers should calculate and explain differences in value being a consequence of these divergences (Ibid., p. 28). Both the definition and interpretation of the market value based on the highest and best use concept was again repeated by TEGoVA in IVS in 2009: The notion (of value author s note) is generally based on the optimal use (EVS 2009, p. 20). However, the value for an alternative use as the basis of valuation was mentioned as one of non-market values. The definition of value, included in the International Valuation Standards, published in 2007 and in the European Valuation Standards from 2009 was the same as a definition in the EU Basel II of 2006, it was consistent with the majority of market value definitions implemented in European countries (Ibid., p. 19). 5.2.European concept of hope value It seemed that great success has been reached in the global scale the definition and interpretation of market value, which was acknowledged as the valuation basis were unified. Still, the Royal Institute of Chartered Surveyors (RICS) in the latest edition of their standards, which are recognized internationally, entitled RICS 2011 Global Valuation Standards (VII edition) departed from the concept of optimal use as the only principle of defining the market value by introducing a less restrictive assumption on using a property which on the day of valuation is not permitted by law but can be permitted in the future and the market is already reflecting the anticipated rise of value in prices. This concept has been named as hope value (EVS 2012). It has been well-understood and applied in Great Britain for ages where it is believed that the future potential use which is still unlawful can be taken into account in the market value on the condition that there is already demand on the market for such a property with future potential. Such an interpretation of value results from the planning system in Great Britain, where the certainty of obtaining a construction permit appears only after issuing a local authorities decision on the 9

16 building development conditions. Before this decision it can only be assumed, namely hoped, that the local authorities will give a positive decision. Before issuing the decision, the market value will be lower than after its issuing, but it will already include the hope value. Already in the fourth edition of EVS (EVS 2000) the notion of hope value was quoted, defined as a constituent of the property value, exceeding the value for its present use. It takes into account an uncertain nature or scope of such kind of perspectives, including the time, in which obtaining a planning permission or overcoming all related limitations could be expected so that applying the valuable use would be possible (EVS 2000, Annexe 7). Following the RICS s standards, TEGoVA, in the latest edition of the standards (EVS 2012) definitely introduced a principle on property use which on the day of valuation is not legally acceptable but can be acceptable in the future, and the market already reflects the anticipated rise of value in prices. It can be seen in the following formulation: [ ] A hypothetical seller will not accept a lower price for this property, and a hypothetical purchaser will not be willing to pay more than he would pay for a similar property which could be used by him in a similar way. Since each point of the definition of the optimal property use (except for the evidence requirement) imposes certain limitations on the market value definition, the rule of optimal use does not have to be the same as market value, no matter how higher it might be than the value for the present use. The most apparent difference is based on excluding potential permits or other future possibilities with which the market would involve the hope value and in relation to which it would assess chances, risk and costs. (Grzesik, Źróbek, 2012). Regulations on hope value, introduced by EVS 2012 can be even deemed revolutionary, since they contribute to extending the concept of the market value. Still, they reveal the duality of this value interpretation in the world: in IVS the market value is based on the highest and best use, in Europe there is an additional possibility of defining the value with assuming the hope value. Organizations such as RICS and TEGoVA have decided that the optimal use concept imposes too strong a limitation on this value category. Participants of the property market can see the potential which is in property, confirming this in the prices of concluded transactions despite the fact that implementing this potential has still no legal permission. If the valuation is to reflect the market, than it seems that the hope value concept shows well the behaviour of its participants. The value is set on the basis of behaviour based on anticipated usefulness. 5.3 Attempt to implement new interpretation of market value in Poland After the publication of IVS 2005, introducing the only market value, based on the principle of the highest and best use, professional circles in Poland began to prepare a new professional standard. Time of preparing and passing the standard by the Polish Federation of Property Valuers Association as well as stormy discussion in the professional press prove difficulties of accepting the new concept. The standard was adopted by the National Council of the Polish Federation of Property Valuers Association as late as in An attempt to implement in Poland the new interpretation of market value as the standard market value and replacement value was met with fierce criticism (compare with for example Prystupa, 2010). It was argued that: - the principle of optimal use is contrary to regulations of law which in many areas, for example for the purposes of compensation, require defining the market value for the present or alternative use, - the valuation based on the principle of the present or alternative use leads to defining the market value, the requirement to define market value for the optimal use is wrong, since it does not reflect the behaviour of property market participants. For example, participants of the property market, by buying a detached house do not consider a possibility of its superstructure, therefore these behaviours do not entitle the certified property valuer to look for the optimal way to use the property, - the optimal use is a made-up way of future use and is contrary to valuation principles both from the perspective of a comparative method as well as profit-wise. In the comparative method, this assumption would mean the necessity to manipulate while choosing comparable property or using some additional optimum coefficient in the comparative procedure. Also in the profitable approach it would mean the need to define the market value in e a c h s i t u a t i o n with assuming the highest and best use of the property, - the highest and best use is the owners problem and possibly investment advisors since it is difficult for the certified property valuer to examine whether there is demand for the property 10

17 purchase for the highest and best use as well as to define when and under what condition such a use can be introduced - adopting the optimal use for the purposes of securing the creditor s debt will result in an increase of the pool of unpaid credits and can lead to a crisis, the prove of which is the last financial crisis in the world. A similar argumentation was applied by other authors (Jędrzejewski 2010, Kalus 2010). Lack of unanimity of the market value interpretation in the circles resulted in not accepting the standard by the legislator 4. It is difficult to agree with the aforementioned argumentation since it does not reflect the essence of the value as an economic category, objectivising the market. It is also difficult to agree with the argumentation that the highest and best use interferes in legal regulations of the valuation. It needs to be emphasised that the rule of the highest and best use is not a defining element of the market value, but an element of its interpretation. This means that adopting the concept of the highest and best use is not at variance with the legal definition of the market value, it also does not have to be at variance with legal regulations on areas in which the legislator clearly indicates the need to adopt another principle, since valuation standards, both at the European level (EVS) as well as international (IVS) underline clearly that the certified property valuers should use the market value definition unless regulations of law state otherwise (EVS 2009, p. 11, IVS 2007, p. 31). This means that the new interpretation of value does not interfere in the valuation on areas which are regulated by particular assumptions to define the market value, for example for the purposes of compensation. The valuation is to reflect the behaviour of market participants and the rule of the highest and best use accompanies the participants of the market. It is proven by the following behaviour of these participants creating both supply and demand: - sellers behaviour: property owners, putting it up on sale are selling its potential, for example people selling a post-industrial property know that it will not be used for this purpose anymore, that the buyers apart from renovation, modernization will adapt it to another function, a function which will give it a higher value. Sellers, aware of the potential in the sold property, want to participate in the profits from this kind of potential. - buyers behaviour: buyers of property, calculating the maximum price that are able to pay for the land take into account its potential, often a potential that they will be able to create. The certified property valuer, just confirms in the valuation process the potential already discovered on the market. He does not create it since it would be at variance with the essence of valuation, based on looking for a value objectivising the market, a value established on the basis of dominating market data. The purchaser is not buying the past, he is not buying the presence, he is buying the future. This means that adopting an assumption of the present use in the valuation process cannot each time lead to defining the market value since there is no demand for the property for the given (present) use. If the property has no market with the current use, searching for a different way will be needed (Ratterman 2009). The aforementioned means that the sellers assess the purpose of the buyers future purchase of the property. Demand, expressed by the purchasers, depends not only on the prices paid at present, but also on non-price factors which include for example: expectations concerning the future, including the possibility of a different use of the property. Looking for the highest and best use does not mean that other than the present use should be adopted for e a c h property. A detached bungalow or a bungalow with usable attic, located in a residential area of detached houses c a n n o t be valued for the purpose of defining the market value with an assumption of its superstructure or a change of its function for example to an office. Purchasers are presently looking on the Polish market for a one-storey house. If any of them files a request, after the purchase, for superstructure of a change of the function (from the residential function to office function), this will not show the dominating behaviour of market participants whose reflection is binding on the stage of defining the market value. For the majority of property, the present use will be reflecting its highest and best use. Continuing this thread it needs to be strongly denied that it was looking for the highest and best use for the residential properties that lead to mortgages crisis in the United States, spreading into a global financial crisis and affecting the 4 In accordance with the will of the Polish legislator, the certified property valuer has to obey the regulations of law and professional standards. This means that the professional standards have to be agreed by the legislator. 11

18 real economy in the global scale. For the majority of these properties the highest and best use was repeating the present use. Among counterarguments, often quoted by lawyers and supporters of law domination in the valuation in Poland, there is a small share of the country s area, for which there are local area development plans. Market analysis allows noticing that a lack of local plans is not an obstacle for investors (developers) in carrying out their investment plans. The lack of local plans will undoubtedly prolong this process but will not make it impossible. The investor, at his own cost, will lead to a change of the local plan. This indicates the appropriateness of adopting the hope value principle in the valuation process. It is observing the market that allows the certified property valuer to reflect the current behaviour of investors. The price that the buyer will pay for a property is based on his conclusion on the most cost-effective way of using the property. In the valuation process the valuer repeats the dominating behaviour of market participants, he does not create them. If the valued property is bought by an investor or a developer and their vision of this property development will be different than assumptions applied in the valuation process it does not mean that the valuation was made incorrectly. It was based on assumptions of typical, former behaviours of the market participants. An investor (developer) may always show on the market who will discover an even bigger potential that the previous participants. His development vision allows achieving an added value, it is an expression of creating by him an individual value, higher than the market value. An Australian developer who purchased a post-industrial property, which is in the national register of historic monuments in Łódź, can be an example of such behaviour. He has led to adopting a local plan and adapted it to a residential function (lofts). It was an inventive function on the market. In the process of valuation on the basis of the current behaviour of investors the property has been valued with assuming its office and storehouse function since this was the market evidence that the certified property valuer has had. Even if the valuer, during the valuation process, had had a signal about the vision on using the property by the future purchaser, he would not have been able to take it into account in the adopted assumptions for the valuation, since it was not confirmed by the market. This means that applying the highest and best use assumption requires understanding of the market participants behaviour, indicating the need of its reflection in the valuation process which is to objectivise its participants behaviour. 6. Conclusion Summing up, the concept of market value and evolution of its interpretation in Poland is influenced by international organizations, responsible for drawing up professional standards: IVS and EVS. Unfortunately, they have created a common definition of value, they have not worked out its common interpretation. Adopting other interpretational assumptions concerning the market value by TEGoVA, recognized as the main basis of the valuation, proves that two concepts of market value have been clearly distinguished as a result of clashing of two schools of valuation: the American and British school. The European valuation school is being written about more and more often whose shape is largely influence by the British school. Terminological chaos is widening on the scale of particular countries. This is proven by the presented evolution of the value concept shown on the example of Poland. An institutional dimension of the market, including habits, slowly changing awareness, legal regulations have a significant influence on adopting and accepting valuation rules on the national level and as a consequence also the valuation process and value level. It can limit significantly the freedom of spreading the International and European Valuation Standards. Lack of unification of the market value strengthens the role of the National Valuation Standards, which taking into account the national legal regulations, transparency of the national market, level of its development, understanding and accepting the concept of valuation can derive simultaneously from numerous schools of valuation. This supports an argument that acknowledging in some European countries the International Valuation Standards as the National Standards cannot be deemed sufficient. 12

19 1.2. METHODS OF REVEALING THE POTENTIAL OF THE PROPERTY IN THE PROCESS OF MARKET VALUE ESTIMATION Abstract Property is worth as much as the market itself namely, it is worth as much as the participants of the market are willing to pay for it. Moreover, the value of the property may be measured by its potential. This is the fundamental statement of this article, and the authors attempt to introduce it with regard to establishing the appropriate method of determining market value. In the process of property valuation, it is necessary to understand the property market, particularly the decision-making mechanisms that operate within it. Therefore, one must learn to accurately assess the potential residing in property just as the buyers and investors do. The authors emphasize that only the detailed residual analysis, which takes into account all the advantages and disadvantages of certain solutions and is preceded by Highest and Best Use analysis, may provide the answer to the question of market value of a given property with the potential for development. If there are any limitations to the development of the valued property or properties chosen to be compared with regard to their possible use, they rarely would be reflected in valuations undertaken with the use of the comparative method. However, the residual method of valuation allows to take into account both the advantages of a property and the disadvantages that might depreciate its value. Keywords: real estate, Highest and Best Use analysis, residual method of valuation 1. Introduction The word value has become a term used in all human, social and economic sciences. It has recently been introduced into the realm of technical and biological sciences as well. This context reveals a certain paradox the widespread use of the word value does not coincide with the proper understanding thereof. Władysław Tatarkiewicz, the eminent Polish philosopher, thus commented on value: Defining value is difficult, if possible at all. Just like the words existence or consciousness. What seems to be a definition of value is merely a replacement of the word with another, similar in meaning like good, or it is a periphrasis. Such a periphrasis takes one of two forms: either it says that a thing s value is the trait that makes the thing worth of existing, rather than non-existing, or it says that value is a thing s trait that makes us want this thing, that makes us need it.(tatarkiewicz, 1978). Economic theories claim that value is an abstract category, emerging in the market as exchangeable value, or market value which takes the form of a price. However, the question remains what is the basis of that quantitative exchangeable relation: use value, rarity of goods, or marginal utility, i.e. the extent to which these goods are in demand. Thus, value determines the quality of goods also the immovable ones, among which property could be included. Property and space management is taking place amid the growing competition between local governments that seek the increase in their budgets. Moreover, the authorities need to provide spatial order and meet the needs of the local communities, considering also the other parties that perceive property as a market commodity and means of capital investment. The aforementioned situation requires the introduction of an active, complex policy concerning space that would take into account the increasing value thereof. A prominent element of spatial and land-use planning is land valorization, which nowadays takes the form of market value estimation with regard to the current or optimal use of the area in question. Initially, valorization meant the determination of the land s usefulness for various planning purposes (i.e. determination of the so-called use value). Value estimation consists of the qualitative comparison of lands and the current/future demand for particular use, i.e. the determination of their economic, or market, value. Estimation results have influence on the form of certain norms and models concerning the outlook of space. Thus, they create a framework for planning activities and property management. The notions of value, price and cost are frequently used in procedures related to the realization of land management policy with regard to property. 13

20 Many decision-making processes are driven by the results of the property market analyses, or the results of property valuations carried out by professional valuers. Property s value depends on a number of factors that constitute its surroundings, where a property could be possessed, used or sold. These factors include: localization, supply of technical infrastructure appliances, size, microclimate, unemployment rate, loan acquisition cost, the community s habits, central and local legal regulations. Thus, determination of value requires the analysis of numerous features, including their scope and impact, as well as the ability to measure them. 2. Potential for development as a creator of the property s value Adequate determination of property value requires the knowledge of legal regulations, valuation theory and mechanisms that govern diverse areas of activity of various participants of the market. Valuation theory claims that there are many kinds of value, and the methodology of defining them depends mostly on the kind of property, its legal status, the purpose of valuation and the current state of the property market. Polish law distinguishes the following kinds of value: market value, reinstatement value, cadastral value, mortgage lending value, initial value of fixed assets, book value, insurable value, liquidation value. The use of any of these values depends on the needs of the interested party. What then would be the value of a vacant plot of land according to the land-use planning intended for residential development, owned by the gmina (commune, the basic unit of territorial and administrative division in Poland) and granted the perpetual usufruct: when the gmina intends to update the perpetual usufruct annual fees, the valuer appraises the market value of land as subjected to the right of ownership; when the perpetual usufructuary sells the property, the amount of most taxes and fees related to the turnover depends on the market value of the right of perpetual usufruct; if the amount of property tax in Poland depended on the said property s value, the cadastral value should be determined as the amount similar to market value; mortgage lender (the bank) determines the amount of the given loan in relation to mortgage lending value, which by definition is lower than market value; individual investors are more interested in the amount of future income that can be drawn from the capital invested in property rather than in the current value of that property. In the process of property valuation it is essential to consider both the theoretical and practical paradigm: Property is worth as much as the market itself namely, it is worth as much as the participants of the market are willing to pay for it. Moreover, the value of property may be measured by its potential. Those who undertake valuations need to understand the property market and correctly interpret the expectations and capabilities of buyers. Therefore, it is essential to learn how to accurately determine and assess the potential residing in property just as the buyers and investors do. From the analytical point of view, the solution to the problem requires the selection of appropriate methods for analyzing the available information rather than, as it is often observed in practice, the adaptation of the existing information to popular analytical methods, such as econometric models (Renigier-Biłozor and Wiśniewski, 2011). The better one can recognize the traits of a property (particularly those that contribute to the emergence of a given price on the market), the easier it is to find the most probable transaction price, which emerges at the crossing of supply and demand. It is relatively easy, by adapting the comparative method, to value typical properties that are frequent objects of transactions on the market and whose traits influencing prices are fairly easy to identify and quantify. This may be done intuitively, like the buyers do, or by the use of the apparatus described in valuation theory by applying the comparative method. But what happens when an investor deals with more specialized property, such as investment lands, developing properties (under construction, reconstruction or modernization etc.) or other properties with development potential that are sought after on the market, but there are no comparable sales transactions? The investor, buying investment land, above all considers its productivity and usefulness in achieving profit, for instance by developing it and then selling, renting apartments or commercial areas. If the buyer purchases land for residential investment, the crucial information for him (and for the valuer) is how many square meters of useable apartment area could be built on that property. It may happen and it often so does that properties similar in size, technical infrastructure supply and other physical and legal 14

21 traits may possess a different investment potential. The reasons may be for instance the building code and technical requirements that the residential buildings have to meet. This case can be illustrated by an example of an analysis undertaken for an Irish investor interested in purchasing property in a big Polish city. The detailed analysis and conceptual design enabled to establish that the solar path (determining the amount of the necessary insolation of the elevation) will cut about 30% of the residential area out of the building designed on that property. Some other similar properties, free of that flaw, were sold at a higher transaction price (Adamiczka, 2011). The importance of Highest and Best Use analysis, which provides the crucial information for property valuation process, has been asserted by the following academic publications. David C. Lennhoff and William A. Elgie (1995) indicate that the results of HBU analysis are fundamental in valuation and should be undertaken before the application of a specific valuation method. Scribner (1997) claims that the valuation report contains numerous conclusions, of which two are the most important; namely what is the best use and what is the property s value. The first conclusion could be a result of an extensive study, and the second conclusion depends on the preceding one. Scribner emphasizes that property value is a function of its capacities, of how it could be used, and that is not firmly determined and therefore requires numerous analyses. Highest and Best Use analysis constitutes a bridge between the concerns of economy, statistics, means of use, nature of particular property and the needs of purchasers, who consider multiple options of current and potential development. 3. Highest and Best Use analysis of the property as a supporting instrument of the valuation process HBU analyses comprise, among others, sale possibilities and legal, technical and financial feasibility. They may be applied to new investments and the already existing ones alike, as the cost of multiple refurbishments of developments is similar to the cost of erecting an entirely new building. However, a valuer undertaking HBU analysis of developed property which does not indicate the optimal land use must take into account the possible economic profitability of the existing use in the context of the market. Replacing the existing building with a new one, of higher standard, may cause the lack of tenants who will not be able to bear the higher rental costs. It should be noted that while the valuation result is presented in a quantitative manner (value represented as an amount of money), the outcome of HBU analysis is represented in a qualitative, descriptive manner. The process of analysis consists of six stages: 1. Examination of legally allowable uses (property law, limitations, law of obligations, land use planning, environmental law, building code etc.); 2. Description and analysis of the technical and physical features of the site (surface, boundaries, topography, waters etc.) that enable to establish whether the intended use is physically possible. Sometimes the cost of removing a certain element in order to change the use is so high that the higher value brought about by the new use will not recompense it; 3. Analysis and assessment of the governmental and regional policies, examination of the local authorities willingness to support the development (e.g. development facilities, transport and communication network); 4. Examination of the market demand for the property uses remaining after the preliminary selection. This stage includes: - analysis of sale prices and rent each use in relation to qualitative traits of the property in question, - analysis of building surfaces and their quality, analysis of standard with regard to the absorption capacity in the market. Conclusions of market analysis should be formulated on the basis of a careful examination of competing investment history, demand and supply for the similarly used properties, changes in the investment market since the time when similar investments have been absorbed by it. In addition, the examination of the property s capacity to satisfy the needs of the market for a particular kind of investment. 5. Verification of the chosen variants of use in the context of economic profitability and with regard to market circumstances. Generally, the highest and best use is claimed to be the one that equals or, in the case of multiple variants of use, most remarkably exceeds the threshold of market assessment criteria. The study of financial feasibility compares the expected income, capital costs and risk of use with market figures. While the market study is carried out in order to predict the intensity of use, the study of financial feasibility estimates the profitability of use with regard to the investor s 15

22 potential success on the property market. When the rates of return equal or exceed the level desired on the market, the venture is claimed feasible. Therefore, study of financial feasibility is a special stage in Highest and Best Use analysis. 6. Conclusive determination of highest and best use. The last stage of the process is to formulate a conclusion concerning highest and best use according to the following rule: the use that guarantees the highest price of the property or its maximum productivity calculated with regard to the rate of return indicated by the market, is deemed optimal, i.e. highest and best use. Highest and best use that is different than the current one on the day of valuation can be accepted for valuation only when there is market demand for a property with that particular assigned use. Moreover, the competing properties of the same or similar uses need to be taken into consideration as well. It is worth emphasizing that the European Valuation Standards issued in 2012 have modified the interpretation of high and best use by resigning from the requirement of legal allowableness of use. This requirement remains applicable in EVS only in the instances of market value assessment for the purposes of financial reporting (European, 2012). 4. Residual method of valuation as a means of investment property valuation Only the detailed residual analysis, taking into consideration all the possible advantages and drawbacks of certain solutions and preceded by Highest and Best Use analysis, may provide information on the optimal use of property that possesses development potential. The comparative method gives the best results when the typical, less diversified property with identified potential is concerned. However, when the case is the analysis of more specific, advanced level property (as in the aforementioned example), there is little chance of obtaining reliable market information on its traits that exert most impact on the price. Therefore, what would be the most appropriate method of valuation for investment land or developing property? Let us consider reasons why investors purchase land or property intended for further development. The international valuation standards thus define investment property( International, 2011): 2.1. Investment Property. Property (land or building, or part of a building, or both) held (by the owner or by the lessee under a finance lease) to earn rentals or for capital appreciation, or both, rather than for: use in the production or supply of goods or services or for administrative purposes; or sale in the ordinary course of business. The situation in question is the purchase of property in order to develop it by planning a certain investment which is legally allowable, physically and technically possible and provides a maximum financial profit. A rational investor would surely do that, and the valuers should reflect these market mechanisms. First of all, market mechanisms should be considered it is necessary to examine the market and seek for demand for specific use that determines the kind of feasible investment. Moreover, the market s absorption capacity should be analyzed, as well as the time required to complete the investment and the costs related to the planned development of the property. The above actions need to be undertaken by the potential investor and the valuer alike. Thus, at the very beginning of the investment the classic HBU analysis is carried out, the result thereof being the market value determined in relation to the optimal use. The solution to most problems is the residual method in all its forms: the classic, conventional residual method, which could be seen as the model of covert growth, that relies on current costs and value (a static method), or more dynamic investment valuation methods that use various cash-flow methods including DCF method, i.e. models of overt growth which rely on estimated future costs and value. The fundamental principle of the residual method is that developer s profit (P) equals the value difference (V F) that the property will represent once the development process and the total investment costs (C) are completed. This can be represented by the following formula: Formula 1: Final value Investment costs = Investor s Profit Investment costs( C) = Development costs (CD) + Property purchase cost(vr) V F (CD + V R) = P Thus, the property value on the date of valuation is: V R = V F (C + P) The basic assumption is that the investor (developer) implements improvements to the property in order to achieve the intended profit. 16

23 The developer s profit may be calculated with the use of the following methods: static (time value of money not considered) o Profit as margin on sales (Profit / Sale) o Profit as the percentage of building costs or building costs + property purchase cost or costs required for the completion of developer s investments o Profit as the percentage of equity (RoE Return on Equity) dynamic (time value of money considered) o Profit as a function of the required rate of return from equity (RoE as IRR) o Profit as a function of the Internal Rate of Return (IRR) of the investment Nevertheless, it should be emphasized that the static valuation methods do not consider the time value of money. The only element that does somehow take into account the time-span of investment completion is financial cost (loan interest). On the other hand, dynamic valuation methods fully encompass the impact of the developing process on value. The value of the property in question equals the amount of the discounted income and expenses related to the analyzed investment. Discounting is done when the whole investment is divided into monthly periods, or more rarely quarters, and therefore cash flows take a monthly or quarterly form. Discounting of cash flows requires the discount rate expressed in monthly or quarterly dimension (the principle of proportionality of rates and income). Expanded models, including some additional tools for value management such as sensitivity analysis, SWOT analysis or uncertainty analysis, are capable of representing the ranges of value with the probability of obtaining a specific result in relation to input valuation data, with regard to ranges of variables, accepted by the market, that have impact on the final result. The outcome of the residual method does not always represent the maximum value, even though it shows the maximum amount payable in a specific market situation and in the context of specific market data. Therefore, valuation with the use of the comparative method, although carried out correctly, provided a value that was too high, exceeding the maximum amount the investor could pay. The possible reason could be the lack of possibility to accurately recognize the traits that had influenced the prices the investors had paid for apparently similar properties; which in turn led to the erroneous comparison of these traits with the traits of the valued property. Furthermore, this situation may be related to the fact that the buyers paid too much for similar properties. Such occurrences were frequent during the periods of the financial bubble, when investors would desperately seek to buy property at bargain price. This is a stage of the business cycle when the turning point is approaching and the prices will start dropping once the bubble explodes. In fact, the prices do not drop immediately; it is the buyers who stop buying and a stage of challenge ensues. Buyers have stopped buying for elevated prices, but sellers do not want to reduce the prices and both sides keep waiting until the other yields. Thus, the comparative method seems appropriate on the condition that all the property prices and their mutual influences are known and that the valuer knows from which point of the business cycle he is taking the property sale prices to be compared. If there are any limitations to the development of the valued property or properties chosen to be compared with regard to their possible use, they rarely would be reflected in valuations undertaken by the comparative method. On the other hand, the residual method allows to take into account both the advantages of a property and the disadvantages that might depreciate its value (Adamiczka, 2011). A regulation that permits to use the residual method only if the existing conditions do not allow to use the comparative or the income approach comes from the period when the foundations of the Polish school of valuation have been established( Regulation,2004). Today it is damaging for both the economy and the development of the property market in Poland. In the developed countries (and Poland certainly belongs to this group) investment properties, particularly the developing ones and investment land with the development potential, are valued almost exclusively with the use of the residual method and the dynamic models of growth (DCF). Of course, it is necessary to examine the properties that could provide a basis for comparison, and such an analysis always constitutes the point of reference for the residual method. However, in most cases it is the residual method that settles the market value of a specific property. It should be emphasized that the residual method reacts to the changes in the market more rapidly than the comparative method. It corrects the value according to the stages of the business cycle: upwards when the market is growing, and downwards when the market is in decline, while in the comparative method the transactions from the preceding boom would be considered. In the 17

24 declining market, transactions are either inflated or scarce, and thus valuers are forced to use the data from the preceding period (Adamiczka and Chumek, 2011). The two key issues in this case are: 1. Correct use of the residual method preceded by an in-depth transaction analysis. 2. Detailed, multi-layered market analysis that allows to recognize and define the demand and also to find the appropriate input elements for the valuation model comprising at least some elements of HBU analysis. In order to understand this apparently simple principle, an example which comprises the analysis of market value and current use value follows. 5. The empirical analysis Valuation concerned two properties numbered as plot 15/10 and plot 15/11 belonging to one owner, with two land and mortgage registers. The decision on the conditions of building and site development was issued for the investment, which included an office and service building with access roads, parking space and street furniture. The decision precisely defined the development s parameters. An analysis was carried out in order to determine which use would be the most profitable for the site and constitutes the highest and best use for the property in question. Then, the residual method was used to determine the value resulting from the parameters comprised in the decision on the conditions of building. Simultaneously, current use value was estimated in two ways: the property parcel numbered 15/10, where an office building was situated, with the use of income approach, investment method and simple capitalization technique, and the property parcel numbered 15/11 with the use of comparative approach. Figure 1. The area covered by the decision on building. Source: Adamiczka,

25 Figure 2.The research area and its surroundings. Source: own elaboration. Market value for the current use: For the developed property: For the undeveloped land: Total: PLN PLN PLN The value of the alternative use defined by the decision calculated with the use of the mixed approach and the residual method: PLN The figures show that the use proposed by the decision on building conditions is not always the highest and best, although it might have seemed so at a first glance. In fact, the current use is more valuable in the given market circumstances and thus remains the most profitable, and the market value simultaneously is the current use value in this case. The above example also demonstrates that HBU analysis needs to be undertaken meticulously and a wide scope of factors must be considered. The residual method and valuation within income and comparative approaches for the current use have shown that in the specific market circumstances (rent rates possible to obtain for this area and the expenses on the development) this decision on building conditions gives the property a lesser potential than the current use on the date of valuation. Obviously, this situation may be subject to change when the micro- and macro-scale market conditions, such as rates of return on alternative markets, loan charges, building expenses and rent rates, change. The supervision of these factors can be undertaken by sensitivity analysis, which was signaled earlier in the article. Sensitivity analysis may help to indicate the boundary figures of input data, which make the potential of certain alternative uses grow so considerably that an alternative use becomes the best one and settles the market value of a prospectively developing property. 6. Conclusions If the widespread practice advocating that current use valuation always is the estimation of market value does not change in Poland and other countries, valuers will be encouraged to provide inadequate results that do not reflect the real value of a property. Even though, as the practice of valuation has shown so far, about 80% of cases prove the current use is simultaneously the highest and best, still the remaining 20% demonstrate that the highest and best use is different than the 19

26 current one. Thus, market value resides in highest and best use, and current use value is a category of non-market value. This is the way investors perceive the market and properties valuers should adopt this perspective as well and legal regulations should not prevent them from that. It is market value, understood as the value for the most profitable use and usually preceded by Highest and Best Use analysis, that shows the worth of space and enables to quantify it. The residual method proves the most adequate in determining the value of investment property. On the one hand, it demonstrates the potential of space and how it may be used. On the other hand, it protects the investor from the risk of overcapitalizing when the financial bubble emerges. The above examples prove that a person attempting to evaluate property for a specific purpose needs to possess extensive knowledge of the economy, the law and the valuation procedures. In Poland, the professionals meeting these requirements are valuers designated by the government authorities. It should be noted that what greatly influences the quality and accuracy of valuations is a comprehensive database of reliable information on property. This issue has been appreciated by legislation. The regulations concerning land surveying and cadastre include the passages that oblige the institutions maintaining property cadastre to provide databases related to the property market. Moreover, surveyors of managerial posts are required to complete postgraduate studies on property valuation. The consequence of acknowledging the importance of evaluating space is the advanced development of property valuation methodology. The main challenge for valuation professionals lies in developing a deeper understanding of market globalization and better analytical skills, with a view to assessing accurate values (Źróbek and Grzesik, 2013). 20

27 Valuation methods that have been used so far do not allow to answer many questions, since space management directly concerns people, their behaviors, motivations and purposes, which in turn relates to economic, social and even political consequences. Therefore, the observations of Władysław Tatarkiewicz seem sound: it is impossible to define value in an exhaustive, satisfying way. Moreover, studies on categories of value are gradually being replaced by studies on what people claim valuable, studies on their motivations and needs which could be fulfilled by values (Tatarkiewicz,1978). 21

28 1.3. VALUATION OF PROPERTIES LEFT ON THE TERRITORY LOST DUE TO MILITARY OPERATIONS Abstract The military operations that took place in twentieth century caused not only mass human migrations, but resulted in substantial changes in the borders of involved states as well. As the result of Second World War, Poland lost 51% of its area for the Soviet Union benefit and gained territory that earlier belonged to Germany. The similar situations took place in other states. The problem of compensations for lost territories was unsolved for many years in Poland. Yet, the changes in political system enabled applying for reparations. The legal aspect and valuation methodology in such cases are subject of publication. The long-term experiences from Poland may be helpful for the states having similar problems. Keywords: the lands beyond the Bug River, real estate, valuation. 1. Introduction This chapter introduces the issues related to valuation of lands left beyond the present borders of the Republic of Poland, called otherwise the Eastern Borders. After the Second World War, as a result of shifting the eastern border of the State, Poland lost a substantial part of her territory in favour of the former Lithuanian, Belarusian and Ukrainian Soviet Republics, in exchange for enlarging the westward territory of Poland with the former German lands. The State's border extended along Curzon line, mainly along the Bug River, therefore the term "the lands beyond the Bug River" ("ziemie zabużańskie" was coined, and the resettled people were called the "Borderlanders" ("Zabużanie"). These people were repatriated in the years from the Eastern Borderlands. Rising of the claims related to the lands left beyond the Bug River results from resettlement of Polish citizens of Polish and Jewish nationality from the territories of the Soviet Republics, and Lithuanians, Belarusians, Rusyns and Ukrainians residing in Poland under the so-called "Republican Agreements" (umowy republikańskie) concluded between the Polish Committee of National Liberation (Polski Komitet Wyzwolenia Narodowego) and the Ukrainian Soviet Socialist Republic on 9 September 1944, the Byelorussian Soviet Socialist Republic on 9 September 1944 and the Lithuanian Soviet Socialist Republic on 22 September 1944, and under the Agreement of 6 July 1945 concluded between the Provisional Government of National Unity of the Republic of Poland and the government of the Union of Soviet Socialist Republics (the USSR), regarding the right to change the Soviet citizenship of the people of Polish and Jewish nationality residing in the USSR and the right to change the Polish citizenship of the people of Russian, Ukrainian, Belarusian, Rusyn and Lithuanian nationality residing in Poland and their evacuation to the USSR. The most important provisions of the Republican Agreement were adopted into the Polish internal law. In the 1960s the right to compensation for the property left beyond the Bug River was formed as the "right of offset" of the value of property left by the resettled people against: the purchase price of a property or the fee for perpetual usufruct owned by the State. Approximately 10% of the Borderlanders have not yet received compensation for their lost property. The Act on the right to compensation for the property left beyond the present borders of the Republic of Poland was passed on 8 July 2005 (Journal of Laws of 2005 No. 169 item 1418), which removed legal defects and improved the rules and procedures regarding implementation of entitlements. It limited only disbursement of compensations to the 20% ceiling of the lost property value. 22

29 Figure 1. The territory of Poland in before Republican Agreements as the legal basis of claims The Government of the Republic of Poland in exile based in London considered this as violation of the international law regulations, including Poland, as regards the self-determination under the Atlantic Charter, which resulted in introduction of communism in Poland and seizing rule over the part of her territory by the Soviet Union.The decisions were taken without the representatives of Polish government and against its will, which contradicted the principle of international cooperation. Decision on establishing the eastern border of Poland was actually reached without participation of the Polish side already at the Conference of the"big Three" in Tehran between November and December The Republican Agreements regulated the property and personal relations of the repatriated people. In exchange for the property left at Eastern Borderlands, the repatriates were supposed to receive its equivalent in the Western and Northern Lands. The Polish Committee of National Liberation stated that the professional farmers repatriated from the respective Soviet Republics would receive lands in the size provided for by the Agriculture Reform Act. The farmers, "even if they do not own land during repatriation, shall receive, at the request, allocation of land on general conditions, and all other repatriated shall be provided with the conditions enabling them to get a job corresponding to their education and qualifications". From the other hand, the Republican Agreements provided for substantial limitations with regard to the possibility of having the property at disposal by the persons repatriated in the territory of Poland. They could take clothing, shoes, underwear, bedclothes, food, household appliances, rural household inventories, harnesses and other domestic and household appliances, though, no more than two tonnes per one repatriated family. It was also permitted to take domestic cattle and birds. The persons holding specific professions, e.g.: workers, craftsmen, doctors, scientists, etc. had the right to take all the tools of trade necessary for their profession practice. The ban, however, was put on taking away cash (except for Polish Zloty in notes up to 1000 zloty per person or Soviet money up to 1000 roubles per person), paper money, gold and silver money and any type of securities. The ban was also imposed on taking away gold and platinum alloys, powder and scrap, unworked precious stones, works of art, ancient works of art, being a part of collections, as well as separate copies, unless they were owned by a family of the repatriated, weapon except for hunting rifles and war kit, photography - except for personal photos, plans, maps, cars and motorbikes. It was forbidden to take away furniture both by rail and by car due to transport difficulties caused by the war time. 23

30 Pursuant to the Art. 3, item 6 of each of the Agreements: "The value of the movable property left after the evacuation, as well as the abandoned immovable properties shall be reimbursed against an insurance assessment in compliance with the effective Acts of the Polish State." If no insurance price was submitted, the assessment (valuation) of a property was entrusted to Plenipotentiaries and Representatives of the Parties. It is necessary to note that there is no reference to reimbursement of "property", but only to reimbursement of the "value" of the property, which implicates the right of the repatriates to equivalent in cash, paid by the country which brought them. In its further part, the Article determines that "the houses in cities and rural areas, emptied as an effect of the resettlement, were left in the first place at the repatriates' disposal. The left property went under the care of the State and the persons who were found guilty of the damage made to the entrusted property could be held liable. The procedures of reimbursement of the equivalent with the possibility of receiving replaceable property of similar value were established on the grounds of documents gathered by an entitled person, i.e: repatriation certificate, quantity and quality description. Summing up, it needs to be acknowledged that the Republican Agreements regulated the most essential issues concerning the persons repatriated and their property. They included provisions regarding expropriation of the property owners, some of the movables, enlisting both the items which could be taken away and these banned to be taken away. They stipulated the rules of paying reimbursement of the left properties' value in the country receiving the repatriates on the basis of an insurance value or appraised by the Representatives/Plenipotentiaries. The regulations regarding reimbursement of the full value of properties granted to the Borderlanders, except for the relevant clauses in the Republican Agreements, were passed not until The above decree in force together with the decree on agriculture reform as a first legal act regarding the Borderlanders, conferred the right to full compensation. Similarly, all post-war legal acts, effective together with the decree on agriculture reform, granted to the Borderlanders a full equivalent until The decree on agriculture reform, which has been binding until now, together with the acts regarding the equivalent reimbursement of the property value, could not be and has not been the basis for the claims resulting from a property left beyond the Bug River. It constituted, however, a recognized form of partial compensation for the Borderlanders. The first legal regulation regarding execution of the entitlement - Decree of 6 September 1946 on the Agrarian System and Settlement in the Regained Territories and the former Free City of Gdańsk was established during effectiveness period of the Republican Agreements. Hence, the States-Parties' consent over the statutory regulation of the right to an equivalent in the internal legal order in compliance with the aforementioned decree can be presumed. The Republican Agreements ceased to be binding in the international trade as the agreements between the States-Parties after conclusion of the agreement on mutual settlements in Nevertheless, as far as the internal relations concerning the settlement issues with the Borderlanders are concerned, the post-war statutory regulations initiated by the Decree of 6 September 1946 on the Agrarian System and Settlement were binding, and the most essential provisions regarding the entitlement to acquire the State property as an equivalent for the property left were taken over to the Polish domestic law. 3. Legal regulations regarding the obligations resulting from the Republican Agreements During the post-war period the legislator frequently regulated the issues resulting from the Republican Agreements. "The settlements" with the Borderlanders had been planned to be completed to the half of 1957, though, they were not made as the State had to go through a next repatriation action. On 25 March 1957 the governments of the People's Republic of Poland and the USSR concluded an agreement on "further repatriation". Due to political reasons between the 1950s and the 1960s, no actual actions aiming to implement the Borderlanders' rights were taken. Similarly, execution of the entitlements was occasionally initiated in the 1970s and the 1980s. Despite the change in the political and legal system of the State during the system's transformation and the ensuing change in the legislation towards respect of the ownership right, the attempted legislative solutions failed to bring the desired results. Incoherent legal acts delayed the possibility of the entitlements' implementation for many years. Initially, all claims related to the Second World War were attempted to be covered by the Act on Re privatization. The last of the projects of the "joint" Act on Reprivatization, intended for joint compensation of all reprivatization and Bug River claims was passed by the Sejm and the Senate of the Republic of Poland in Nevertheless, the Act on Reprivatization providing for compensation in the amount of 50% for the immovable 24

31 properties was vetoed by the President Aleksander Kwaśniewski. As an effect of the legislative works, two new legal acts regarding only the Borderlanders were established: the Act of 12 December 2003 and the Act of 8 July Despite the opinion of the representatives of the Ministry of Treasury, who acknowledged during the Sejm debate in 2001 that the State has the financial resources to cover the half of the lost property, the ensuing statutory regulations decreased drastically this equivalent (at the beginning to the amount of 15%, currently to 20%). On 12 December 2003 a law called "The Bug River Law" was passed, which introduced the "right of offset" of the value of property left beyond the borders of the State against: the sale price of property or the fee for perpetual usufruct owned by the State Treasury. "The Bug River Law" effective as of 30 January 2004 maintained the form of the entitlements' execution adopted by the prior legal provisions - offsetting the value of the property left beyond the borders of the State against: the sale price of property or the fee for perpetual usufruct owned by the State Treasury. Simultaneously, the legislator introduced limitation in respect of the amount which could be offset by the Borderlanders against the purchase price of a property from the State Treasury, i.e. up to 15% of the value of the properties left, but not exceeding 50,000 Polish Zloty. The limitation to 50,000 Polish Zloty applied to all beneficiaries, irrespective of the value of the left properties. The Law stipulated that the entitlement which was there provided shall be guaranteed to the owner of the left properties, and in case of his death - jointly to all his heirs, if they have Polish citizenship and permanent residence in the Republic of Poland. The Law envisaged creation of a complete information system on the Bug River entitlements and the execution status of theses entitlements, introducing an obligation of setting up and conducting the information system registers at the central and voivodeship levels. The applications for confirmation of Bug River entitlements could be submitted to the end of December The Act of 8 July 2005 on execution of compensation rights to property left behind the current borders of Poland was adopted on 7 October The regulations contained in this Act meet the requirement of reliable assessment of the entitlement's execution status. In particular, in order to prevent any abuses, the size of a partial compensation up to the statutory granted amount of 20% executed in past, shall be included in the certificate or the decision. The Act introduces a two-stage affirmation of the entitlement based on an initial affirmation of the entitlement in the form of a decision, where no prior submission of a valuation survey is needed. The valuation survey, due to the high costs of drawing it up, should be submitted by the Borderlanders once the application has been accepted in terms of fulfilling the requirements set forth in the Act. It is a more beneficial form for the Borderlanders, as in the event of doubts or refuse to confirm the entitlement, the Borderlanders shall not be encumbered with costs related to a property valuation. 4. Disbursement of compensation for Bug River property The final date for submission of compensation applications expired on 31 December These applications, submitted in the relevant Voivodeship Office, shall contain documents, which attest Polish citizenship, possession and abandonment of the property. Deeds of ownership, notarial deeds, as well as statements of still living witnesses. The documents attesting inheritance proceedings, conducted in respect of the owner of a property and the official descriptions of a property or decisions passed by the former National Repatriation Office were required to be attached as well. If there are no documents, the diplomatic offices abroad may provide assistance. Consular Divisions of the Embassies of the Republic of Poland and Consulates General of the Republic of Poland assists in obtaining, particularly, court documents from the archives of foreign countries. Disbursement of compensation for "Bug River property" covers three stages of administrative proceedings. 1st stage - gathering and submission of documents, followed by the assessment of the affirmed entitlement to compensation, ended with decision passed by a voivod. A valuation surveyor draws up a property valuation after the issued decision. In this decision a voivod acknowledges fulfilment of the conditions necessary for receiving compensation. A voivod indicates the date of abandoning the property and he specifies the elements of left property deemed as reliable. 25

32 2nd stage - submitting valuation survey and indicating the form of compensation, which is followed by the decision issued by a voivod. 3rd stage - entering the data in the voivodeship register and transferring it to the central register. The Act maintained an essential regulation referring to non-transferability of the rights to compensation. It applies to both the right confirmed by a decision under this Act, and separate provisions, which means decisions and certificates gained under the rule of aforementioned preceding Acts. This principle forbids trading of "Bug River entitlements", though, it shall not exclude transfer of the entitlements between the persons entitled in the same matter. It applies, practically, to the possibility of assignment between members of the closest family, both co-owners and among heirs. The Act stipulates that all pending applications which have been submitted so far are still honoured. Pursuant to the provisions of the Code of Administrative Proceedings, an application opens proceedings, so in these cases it means proceedings in progress and the party - person interested may demand its closing by a relevant decision. The Act introduced an additional possibility to file applications by the entitled persons who have yet not done it due to different reasons known by themselves. The final date for submission of compensation applications expired on 31 December Documents which should be attached to the application: a) Evidence that affirms leaving the property beyond the present-day borders of the Republic of Poland; this evidence may be, in particular,: official description of the property or description of the left property or Repatriation Certificate; decision issued by the National Repatriation Office; official documents, including court documents, as well as documents retrieved from the State's archives of the Republic of Belarus, Republic of Lithuania, Russian Federation, Ukraine or other countries; in case of lack of documents, referred to as above, statements of two witnesses, submitted under pain of penal liability for perjury, before a notary, body conducting the proceedings or in a Polish consulate in the country of residence of a witness. The witness may be a person who lived in the town/village where the left property was located or in a neighbouring town/village, concurrently, the witness cannot be a relative (in the meaning of the regulations on properties management) for the owners or heirs applying for confirmation of the right to compensation. b) The evidence which affirms having Polish citizenship: The documents issued by the Polish authorities, which attest Polish citizenship (e.g. a copy of an identity card); c) The evidence which affirms an applicant's place or places of residence. In case the applicants are heirs of deceased owners, the evidence confirming place of residence of these owners after arriving at the present-day territory of the Republic of Poland. In case of lack of such evidence, the applicant's statement on place or places of residence of these persons should be attached to the application. d) Statement of an applicant/applicants on the status of the hitherto execution of the right to compensation, submitted under pain of penal liability for perjury, decision on establishing acquisition of inheritance or on inheritance division. If the decision on inheritance division does not indicate the last place of residence of the deceased owner of the left property before his death, it is necessary to attach also the evidence confirming the last place of residence of this person (e.g. death certificate); e) In case of waving the rights of the entitled in favour of another person - statement on indication of the person entitled with a signature attested by a notary or submitted before a public administrative body or in a Polish consulate. f) In case of prior acquisition upon separate regulations, under execution of the right to compensation, the right of ownership or perpetual usufruct of the property owned by the State Treasury - official documents affirming acquisition of these properties. 5. Drawing up valuation survey for the abandoned properties It is in the interest of a "Borderlander", person applying for compensation, as well as in the interest of the State Treasury, as the party obliged to disburse compensation, to conduct the entire procedures provided for by the Act smoothly and without disturbances, in compliance with law, 26

33 logic and the art of valuation, keeping full objectivity. It means a possibly true restoration of the historical condition of the abandoned property and a correct formulation of hypothesis of a present-day value specified in this way, which depends entirely on a valuation surveyor.a valuation surveyor shall start the valuation of properties abandoned in the Eastern Borderlands of the Republic of Poland provided the following conditions are met: a) A decision under Art. 7 of (TheAct 2005), specifying the entitled persons and their rights was issued by a competent voivod. In this decision the voivod calls the entitled persons to select a form of compensation and provide a valuation survey, specifying the value of the abandoned property, drawn up by a valuation surveyor, and in case of prior using Bug River entitlements and acquiring a property before a valuation survey regarding this property. The justification of the decision should refer to the documents under which the voivod accepted the rights of the entitled persons and the elements of the property indicated by these documents. b) The person ordering the valuation is the entitled person indicated in the Governor's decision (one of the persons indicated therein) or the person holding the power of attorney of the entitled person. The party ordering the valuation shall be obliged to submit a decision and the documents referred thereto. If the voivod's decision does not indicate the documents upon which it was issued, the ordering person shall be obliged to provide a valuation surveyor with copies of such basic documents and a statement that the documents were submitted in the Voivodeship Office and they are in the records of the case. Appraisal of the value of the property left in the Eastern Borderlands shall be performed by a valuation surveyor through a valuation survey.the content of the valuation survey should contain, in particular, except for formal entries: description of legal status of the appraised property, list of data and information sources, description of technical and utility conditions of the appraised property, description of a local borderland "market" (the region where the property is located), description of a comparable local domestic market, description of the methods of the value appraisal of a property, estimation of the value of lands and the elements of a property, determining the value of a property, explanation of the result, reservations, remarks and clauses, list of attachments. The valuation survey may contain other additional descriptions and analyses, as needed and at the valuation surveyor's discretion (e.g. a historical background of a heritage building). The legal status of a property shall be specified on the grounds of agreements made by a voivodeship body and contained in the voivod's decision. Description of a legal status includes: designation of a property owner and the date of abandoning his property as a result of circumstances related to war and occupation, designation of persons who hold the entitlements currently. If the decision does not indicate the person of a former owner and the date of the property's abandonment, and it only refers to the currently entitled persons - the answers to the issue presented in item 1 should be searched in the basic documents; "repatriation certificate" or a decision of the Polish Repatriation Office would be particularly helpful there. A valuation surveyor, except for the aforementioned circumstances, shall not investigate the inheritance rights and other economic rights on his own List of data and information sources The list of data and information sources shall include all basic and auxiliary documents, as well as maps and literature including information about the property and its neighbouring areas (town/village, poviat, gmina, geographic region), which provide a correct envision of a property and its neighbouring area Description of technical and utility conditions of the appraised property The subject of a valuation (abandoned property), described at the beginning of a valuation survey (section of formal and legal basis) contains the details specified in the decision of a voivod. If the decision does not contain a description of a property - the data are taken from basic documents. Description of a technical condition and the use condition of the abandoned property is more thorough and detailed from the description of the subject of valuation. The characteristics of a 27

34 property is extended and further specified with the data and information included in auxiliary documents and with adopted assumptions, explaining their essence and logic justification. It is not allowed, though, to introduce new elements of a property going beyond the list arising out of the basic document and included in the decision. Hence, if there is a record in the decision (made under the decision of the Polish Repatriation Office) that a dwelling house constituted a part of an agricultural property (and only this), it is assumed, in the result of an analysis of similar properties in a similar region, where the characteristics included in the documents was more in-depth, that this house was similar to the above mentioned as well; so the number of rooms is converted into measurement, assuming the average most probable size of a room. The same applies to other components of the appraised property. All these speculations should be included in a valuation survey Description of the Borderland market The description of so-called Borderland market - the neighbouring area of the appraised property, depending on its type, relates to a city, gmina, poviat or a geographic region (the proper characteristic part of a voivodeship). The characteristics of a whole voivodeship is unnecessary, as the choice of a comparable voivodeship was determined by the Act and searching for a similarity feature is groundless. The description, whose level of details depends on the available and possessed data and information, includes these elements, which can be also identified on a comparable domestic market and which have an essential influence on the value of a property. The description is not extended with the features insignificant for the valuation process Comparable domestic market It is a local market of a given type of property in the area of a comparable voivodeship, similar to the area where the appraised Bug River property is located. For Cracow and Lublin (equivalents of Lwów and Wilno) this market is the similar city zone. The description should include the characteristics of an area, referred to in the description of Borderland market (they condition fulfilling the comparability criterion). The description of a domestic market, though, is also the characteristics of this market in the economic aspect Description of the methodology of the value appraisal of a property The description of the methodology should shortly characterize their essential features and contain justification provided for by law provisions or the rules of professional standards. Methodology should be specified separately for each type of component or functional parts of the appraised property. When it is necessary to move from the rules specified in the standards and use the author's methodical variant, it should be justified both in the subject-matter aspect (particular position of a property and market) and from the purposefulness and logic of the proceedings' side. The description of methodology should contain these features which will be used in the process of calculation of the value of a given element of a property (component or functional part), and any embellishments and general methodological descriptions should be avoided Appraisal of the value of lands and the elements of a property Appraisal of a property value should be made separately for each of its component and functional parts, and so it should be included in a valuation survey. It is necessary to present a process of a calculation procedure and define clearly the value of an element received as a result of this procedure. The databases, used for the calculations may be indicated in this part of a valuation survey or they may constitute relevant attachments. It is clear from the norm contained in (The Act 2005) that after calculating the values of separate elements of a property, the summary should be put in the survey, and the sum of all values should be multiplied by a relevant Borderland coefficient Justification of a result Justification of the reached result, confirming probability of the value calculated under this method, should be placed directly after a clause determining the value of a property. As it was aforementioned, it is possible to apply different methods, data and information, though, it is always necessary to check the content of adopted base of transaction prices, defined by the relation of average price to a database range, which should satisfy the inequality: ΔC<C mean 28

35 5.8. List of attachments The valuation survey should be accompanied by copies of all basic and auxiliary documents, used in the study. It is possible and desired to attach maps which contain indication of a property location, Borderland market and a comparable local domestic market. In case of Lwów and Wilno, these should be copies of relevant section of the city plans where the location of a property is indicated. Photographs should be also attached, insofar as they illustrate the state of a property from the period prior to abandonment Forms of compensation (The Act 2005) provides for two forms of compensation. The first one is, principally, continuation of the current form, i.e. the right of offset of the value of compensation against: the properties purchased from the State Treasury, including: a) the sales price of the property ownership, b) the sales price of perpetual usufruct right owned by the State Treasury, c) fees for perpetual usufruct of land and the sales of its components, d) fees for transforming the perpetual usufruct into ownership right. The second form is beneficial for the persons interested in the novelty introduced by the Act - it is a form of financial compensation. The compensation in each of these forms is executed in the amount of 20% of the value of the abandoned properties, and the choice of a form depends on the will of the eligible persons. Restriction of the compensation to the amount of 1/5 of the value of a property should be justified by its "aid", not "compensation" character. 6. Conclusions It should be stated that valuation of an abandoned property is a much longer process and it is more complex from typical property valuations. A valuation surveyor must determine a comparable local market in the territory of the Republic of Poland, gather the transaction data and conduct an analysis of this market. An initial appraisal of a value of a property acquired earlier in respect of the held Bug River entitlements should be made, taking into account that this value lowers the compensation due equal to 20% of the value of the abandoned property. The Internet often becomes the only source of information, which provides characteristics of a town/village. In case of bigger towns, it is possible to receive a lot of important information, such as old maps of a location. The abandoned properties were usually farms. At the local property markets there is generally no transactions, whose objects would be the farms, as these are less-developed or moderately-developed markets. In the notarial deeds it is difficult to find transactions of a similar farm structure, i.e. of the type of a building, used building materials, distance from access roads, structure of lands and agricultural lands and the mutual relation of buildings area to agricultural and forest lands. The Act provides for the aforementioned situation (Art. 11, item 4) and it permits to determine the replacement value of the building structures, buildings or part of these buildings. Therefore, during valuation of an abandoned property the two approaches are implemented: a comparable approach for a land valuation and a cost approach for building structures, buildings or their components. In case of the cost approach, the problems encountered by property surveyors are finding a suitable building in available price lists and determining a relevant degree of wear and tear. Technology of construction has changed a lot. In the pre-war times these were predominantly wood constructions, on a stone base, roofs covered with straw or shingles, while currently buildings are made in a traditional brick technology, with roof-tile or metal roof covering. Using the current price lists, there is a need to include a correction, inter alia, in respect of using other materials, equipment or lack of installation, roof covering with a roof angle correction. Value of a property left beyond the borders of the Republic of Poland should be estimated according to the property's condition on a day of abandonment or according to prices or replacement costs on a day of drawing up the valuation. 29

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37 2. METHODICAL ASPECTS OF PROPERTY MARKET ANALYSIS 31

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39 2.1. PREDICTION OF TRANSACTION PRICES WITH USING OF TIME SERIES* Abstract Evaluating real estate market value by comparative and mixed approach, certified property valuers rely on opinion made by themselves, concerning transactions contracted in the past. So, they have to manage to correct transaction unit prices to the date of performed appraisal. Thus, their task is to determine changeability of similar real estate prices, being result of time flow, for individual analyzed real estate market. There are two ways of considering influence of time on real estate value. One of them is time correction made before prices have been corrected, regarding other market features. Then, corrected transaction unit prices taking into account time, are used (for example in interval model or linear regression). One can also consider time, which passed by from the date of transaction, directly for local market statistic analysis, as one of features by means both real estate, recorded in database and evaluated real estate, can be described. Yet, authors propose to make correction of transaction prices in another way. They suggest to add to list of statistical methods a method of analysis time series. In such case, passing time one should perceive as set of subsequent, equal intervals. For the purpose of performed analyses they are following months, as passed from date of the first transaction recorded in database of analyzed real estate. Transaction prices have been assigned to such interval. Created in that way series can be analyzed in order to determine trends of changeability of real estate prices. Mentioned above theses have been verified for undeveloped, land real estate, located in Michalowice commune, Krakow district, Malopolska region, which are expected in land use plan as low housing. Keywords: prices changes in time, forecasting, time series, transaction prices 1. Introduction The market value of property can be determined using a comparative approach, income approach or mixed approach (Act, 1997), (Ordinance, 2004). The valuation performed by a valuer is based on the data derived from the market. Most transactional prices or rate of rental or lease are used to determine projected income generated by the property. Information on prices and tariffs resulting from contracts concluded at different times in the past must be corrected to the date of valuation. The transformation should be based on market trends, therefore it is necessary to designate the direction of changes within a certain time (Czaja, 2001). This period should precede the valuation date immediately and in accordance with the guidelines laid down in Widespread National Valuation Principles (Interpretative Note No 1) it should not exceed two years (The Note, 2008). However, exception from this rule may be allowed. The most popular method to correct the transaction prices is interval model. However, it requires collecting database of similar real estates, where at least four have the same attributes as the property valued (Czaja, 2001). This method, and a number of others, are widely discussed in the literature, including (Budzyński, 2010) (Czaja, 2001), (Klajn, 2007), (Frukacz et al., 2012). There is also another way to incorporate time change in the valuation process. You can treat time as attribute and determine its impact on volatility of property prices. The authors, knowing the opinions (Adamczewski, 2006), (Pawlukowicz, 2003), (Trojanek, 2011), (Wisniewski, 2011) of cyclical nature of property prices on local markets, are trying to join the methods mentioned above - time series analysis. The authors want to take into account in determining the temporal trend the largest number of real estate without having to describe their attributes. 2. The subject of analysis and data sources Analyses were carried out on the basis of collected data on undeveloped lands in Michalowice commune 5, Krakow district, Malopolska region. The commune consists of 18 villages : Firlejow, GornaWies, Konczyce, Kozierow, Ksiazniczki, Maslomiaca, Michalowice, Mlodziejowice, 5 Commune is the smallest unit of administrative partition in Poland (Act, 1998). 33

40 Pielgrzymowice, Prawda, Raciborowice, Sieborowice, Wieclawice, Wilczkowice, WolaWieclawska, Zagorzyce, Zdzieslawice, Zerwana. Commune Michalowice occupies the area of about 50 km2 and it is inhabited by over 9 thousand inhabitants. It is located about 10 km from the historic centre of Krakow ( Location of the commune is shown at the figure 1. Figure 1.Location of Michalowice commune Source: Own study based on ( Source of information was the register of prices and values of real estates6. The first recorded transaction took place on 4 January 2008, the last - 21 December The information about 259 real estate transactions was extracted from the register of prices and values of real estates. All real estates were marked in land use plan7 as detached houses or areas offarm buildings. The basic characteristics of this database contains table 1. Table 1 Characteristics of the analyzed base number of transactions average median minimum maximum standard deviation Source: Own Study In order to illustrate the data in figures 2, 3 and 4 better: the histogram unit transaction prices recorded for analysis of real estate in Michalowice, in the years , the correlation of unit transaction prices and time of transaction and number of transactions and the average transaction price of a unit divided into years were presented there. A register of prices and values of estates is run on the basis of (Ordinance, 2001). It contains: transaction prices, recorded in authenticated deeds, delivered to cadastral office in order to insert changes in cadastre (for example: change of owner as an effect of purchase-sell contract), real estate values determined by professional valuers in valuation reports and abstracts from them are delivered to cadastral offices (Act, 1997). 7 There are three levels of spatial planning in Poland (Act, 2003): country, regional and local. The last is run in the area of commune. There are two planning documents made on local level: study plan (worked out at scales 1:10000 or 1:25000), showing general planned purposes and land use plan (worked out at large scales, for example 1:1000), showing these purposes in details. Study plan is prepared for the whole commune, and it is compulsory. Land use plan, in turn, is prepared on the basis of study plan. Land use plan makes local law and is the basis for all investments being carried out in the commune area. 6 34

41 Figure 2.Histogram of unit transaction prices in Michalowice ( ) Source: Own study Figure 3.Correlation of unit transaction price and time, r = , p = 0.95 Source: Own study Figure 4.Number of transactions and average unit transaction price in Michalowice ( ) Source: Own study Figure 2 clearly shows that, although highest and lowest prices are in minority, the histogram of unit prices doesn't show signs of normal distribution. Transaction prices near to the average price ( PLN/m 2 ) are less than the prices in neighbouring intervals. 35

42 Unit prices are not correlated with the time of the transaction (Figure 3). Pearson productmoment correlation coefficient is negative (r = ) and suggesting a decrease in prices over the five years analyzed. This is consistent with the generally prevailing real estate market trends. The more transactions were observed each year, the higher average unit transaction price was. The impact on this situation was largely shaped by the demand in the mortgage markets each year. 3. Selected methods of forecasting The time series can be divided into two ways. The first partition will be dependent on the type of data that make the time series. The basic types of time series will include: one-dimensional time series, which is a string of states of one variable observed, ordered by the time; multidimensional time series, which is the string of several variables describing the specified object; one-dimensional series of cross-cutting, which is the string of states of one variable observed, relating to the same period or moment, for a variety of spatial objects; multidimensional series of cross-cutting, which is created by cross-cutting ranks of many variables considered in one moment or period. The second partition will depend on the way of connecting the components of time series (Figure 5) and is as follows: additive, with constant fluctuations; multiplicative, with fluctuations proportional to the scale; additive-multiplicative. Figure 5.Components of time series Source: Own study based on (Box and Jenkins, 1983), (Brockwell and Davis, 1996), (Hamilton, 1994) The above components of time series can be described as follows: trend, that is the propensity for one-way changes (increase or decrease) of the value of the test variable; constant level, when the values of the predicted variable oscillate around one, a constant level; cyclic fluctuations in the form of long-term and rhythmic movements in the value of the variable around the development trend or a constant level variable; seasonal fluctuations, that are fluctuations observed around trend or the constant level of variable. They are presented in Figure 6. 36

43 Figure 6.Components of time series Source: Own study based on (Box and Jenkins, 1983), (Brockwell and Davis, 1996), (Hamilton, 1994) The existence of the components of time series can be identified in a very simple way. It is sufficient to analyze the shape of chart and then confirm assumptions as follows: for the trend to designate Pearson product-moment correlation coefficient; for the seasonality perform analysis of variance, putting the hypothesis of equal average value. Knowing type of time series and time of forecasting, we can to choose the correct method of analysis. Summary of the most important methods is listed in table 2. Method of forecasting naive moving averages weighted moving average exponential smoothing simple model Table 2 Methods for forecasting time series Components of Time of Characteristics of method time series estimates simple calculations, quick forecast, poor quality of forecasts constant level and random fluctuations one period 37 simple calculations, quick forecast, difficulties in selection of the parameters

44 Method of forecasting exponential smoothing Holt Model linear regression creeping trend with harmonic weights Components of time series trend and random fluctuations Time of estimates Characteristics of method short-term forecast flexibility, difficulties in selection of the parameters forecast short and mediumterm indicators method exponential smoothing Winters model ARIMA method of singularity periods short-term forecast constant level or trend and random fluctuations and seasonal fluctuations forecast short and mediumterm short-term forecast simple calculations, ability to determine forecast error ability to determine forecast error, adapting to the trend, complex calculations, difficulties in selection of the parameters ability to determine forecast error, complex calculations ability to determine forecast error, complex calculations, difficulties in selection of the parameters good quality of forecasts, analysis of large data sets, time series must be stationary, difficulties in selection of the parameters ability to determine forecast error, difficulties in selection of the parameters forecast short ability to determine forecast and mediumerror, complex calculations term Source:Own study on based (Box and Jenkins, 1983), (Brockwell and Davis, 1996), (Hamilton, 1994) harmonic analysis In order to be able to analyze the time series properly, its elements must meet the following criteria (Pawlukowicz, 2009): time series must be homogeneous (data in periods or in moment); units of time must be equal (equal interval between the moments or equal time interval); the period of analysis must include the range for which the same reasons have influence on the explored phenomenon. 4. Time series data for average prices and forecasting Time is the very important factor in the analysis of real estate prices. Time can be represented as the collection of successively distant points. There have been splitted for periods of equal months to illustrate time series for transaction prices. It was calculated basing average prices in each month. Time series for average prices are shown in the figure 7. At the beginning the proper assessment of the process based on figures important. It is not always possible to identify a trend or seasonality on the basis of the original chart. It may be helpful to smooth a time series to extract trend and seasonality. Time series smoothing is made using mechanical methods moving average. The results are shown in figure 8. On the basis of figures it can be formulated requests. Decreasing trend can be shown. In addition, from August to October of each year there is an increase of real estate unit prices. In turn, from December to April it is the decline in average unit prices of real estate. Such trends have been shown on the example data set analyzed, including average prices in Michalowice in the period

45 200 Plot of v ariable: av erage price per unit [PLN/m^2] average price per unit [PLN/m^2] / / / / / / / / / / / / / / /2012 time Figure 7.Plot of variable: average price per unit in Michalowice ( ) Source: Own study Plot of v ariable: av erage price per unit [PLN/m^2] mov ing av erage / / / / / / / / / / / /2011 average price per unit [PLN/m^2] time Figure 8.Plot of variable: average price per unit in Michalowice ( ) (smoothing moving average) Source: Own study Further analysis has been carried out taking into account the perceived correctness. The best fit was the analytical time series model with trend. Smoothing additive model is illustrated in figure 9. 39

46 200 Smoothing additiv e model av erage price per unit av erage price per unit smoothed time series average price per unit: / / / / / / / / / /2014 time Figure 9.Smoothing additive model for average price per unit in Michalowice ( ) (with time series forecasting) Source: Own study The authors have forecasted the average prices in the following months on the basis of the additive model. The average transaction price per unit adjusted for December 2012 is PLN/m 2. Forecasted prices in subsequent months shall be on a similar level. 5. Linear regression model for the trend of changes in transaction prices in time To compare the results obtained from the analysis of time series, the regression model has been selected. It is the model that can be used for price adjustments in the collection containing property with similar attributes, in which transactions are shifted relatively to each other by at least 12 months (Czaja, 2001). Valuation date should not be later than 3 months from the last transaction in the database (here: December 2012). It has been decided to extend the time period for analysis with the prescribed two years (The Note, 2008) to five. This is due to do the lack of clear trend and seasonality in the created database and the length of period during which the appointed time series is created. In order to determine the trend of changes in transaction prices in Michalowice, in the years , average and standard deviations for unit transactional prices and time were designated. They are presented in table no. 3. The table also contains information about prices corrected on December Average and standard deviation of transaction prices and time average standard deviation unit transaction prices [PLN/m 2 ] time [months] adjusted unit prices the transaction December 2012 [PLN/m 2 ] Source:Own Study Table 3 40

47 The price was transformed at the time using formula (1) and (2): ( c) B r (1) ( t) SK i c c B t t ) (2) i ( W i This means that the average unit transaction price adjusted for December 2012 is PLN/m 2. This value in each month decreases for almost 0.41 PLN/m 2. It seems that extrapolated values can be compared with the values obtained in the analysis of time series. 6. Conclusions To sum up, one should express the following statements: 1. Tested data in its original form don't meet basic criteria, that should be met by time series for their proper analysis. Time series of unit transaction prices have homogeneous character (the information in the registers of prices and values are delivered for specific moments the day of the notarial deed signing or the valuation day), so the units of time are not equal. Therefore, it was decided to designate the arithmetic average of transaction prices in individual months. This led to the creation of a time series consisting of values assigned to the same space of time (one month). It was assumed that in the years real estates in Michalowice were sold in similar conditions. 2. The linear regression model, which is listed as one of the time series analysis methods, is used in the valuation of real estates to determine trend changes in transaction prices in time. Because it is a way to forecasting, on the basis of data sets with a clear trend with possible random fluctuations, it doesn't work in the case of large disparate databases. 3. Projected prices are similar in both time series and linear regression model prediction. In the case of seasonality forecasting on the basis of the time series, which take into account the trend and also seasonality, it seems reasonable. * This work is financed from the funds for science, no , realized at AGH University of Science and Technology, Faculty of Mining Surveying and Environmental Engineering, Department of Geomatics, allocated for the year

48 2.2. THE INFLUENCE OF ADMINISTRATIVE DECISIONS ON THE DEVELOPMENT OF COMMERCIAL RETAIL PROPERTIES MARKET Abstract: Administrative decisions of local authorities units bear a substantial impact on the development of commercial properties. A local authority has the greatest actual power through land-use policy development. It is an only field where a local authority can, almost freely, influence on the development of local communities. Proper decisions may lead to sustainable development and satisfaction among local communities. The wrong ones result, in turn, in destruction and personal tragedies of the participants of the real estate market. The author using as an example a town with 38 thousand inhabitants located in Podkarpackie Province, Poland, demonstrates irreversible effects, brought about as a result of amendments to the local law (Spatial Development Plan), on the development of real estate market. The research covers the period between At the beginning of the analysed period there was hardly any real estate market. The rate of return did not exceed 7 years at good locations. There are examples of return on the expenditures made for building a store even within 5-year period. As the revenue generated from the commercial facilities lease was so high, there was nobody interested in commercial properties sales at the end of the 90s of the last century. High rents had their impact on a continuous and stable development of commercial properties market. The analysed town was practically a trade centre for a whole district with the population of 120 thousand inhabitants. Therefore, as far as the author knows, there were no cases of bankruptcy of the companies conducting their businesses reasonably. After Poland acceded to the EU and the right to locate large-format stores within the area of cities was liberalized, an influx of newly developed stores began. The retail space equal to 30 thousand m2 in 1998 was successively enlarged by a few thousand m2 on average each year, so that in 2006 it reached approximately 60 thousand m2. Since 2007 there has been an unprecedented development of hypermarket chains, which led to a surfeit of retail space and a drastic drop in profitability of sales for the family businesses. In 1998 there have been registered over 2500 companies conducting commercial activities. After 2010 there were approximately 1500 people, mainly from small companies, who were at risk of job loss. In the forthcoming period, next large-format stores of a total space over 40 thousand m2 are planned to be opened. It will bring a very strong disproportion between the supply and demand relations at the real estate market. Finally, it will lead to a change in the utility function of a number of shops adopting them to, for instance, apartments. The ongoing changes at the real estate market in the analysed town have an unusually interesting research thread. The work shows transformations at the commercial properties market from the undeveloped phase of the market, through subsequent development phases, up to the phase of complete surfeit and the evident oversupply in relation to demand at the local market. Furthermore, the author considers an extremely significant issue, namely, the current social changes among local communities. Keywords:real estate market analysis, commercial properties market. 42

49 1. The analysis of real estate market as an element of decision-taking in urban policy-making process A process of capital concentration and crowding-out home trade by foreign retail chains has been observed in Poland for a couple of years. [Wilk 2005]. The state and local authorities, believing uncritically in the free market actions, have failed to duly protect the mechanisms serving sustainable development [Woźny 2007]. Local authorities, particularly, are appointed to create a right spatial, size and industry structure of trade wtihin their territories. The element necessary for taking optimal planning decisions is conducting a constant monitoring and analyses of trade development [Wyżnikiewicz et al. 2006]. A properly conducted monitoring research may be a basis for a harmonious spatial management within the territory of a given local authority. Above all, land consumption, traffic and the social impact of opening new stores should be taken into account during planning works [Bieleninik, Mikuś 2005]. The basic prerequisite for planning a new store construction shall be an analysis of retail space saturation within a given city and the social expectations of its inhabitants. Domański [2005] 170 underlines that a modern shopping centre is a "product" of a new generation. A wide choice of goods and services is accompanied by an alluring architectural and urban space. Therefore, competitiveness of new stores is considerably greater than of the traditional trade. The basic planning document for conducting a local authority's planning policy is a Study of the Conditions and Directions of the Spatial Management of a Commune. The Act of 27 March 2003 on Spatial Planning and Management (Journal of Laws, No. 80, item 717) refers to covering in the Study of the Conditions the following elements: influencing the inhabitants' quality of life (item 1.5), public purpose investments of local and supra-local importance (item 2.6 and 2.7) and the conditions of building commercial facilities of the sales space over 2000 m 2 (item 2.8). The problems of trade locations and their functioning are regulated, to some extent, by the Regulation of the Minister of Infrastructure on the scope of the Study's Project of the Conditions and Directions of the Spatial Management of a Commune (Journal of Laws No. 118, item 1233). In the aforementioned legal acts, it is recommended to prepare an analysis on the functioning of essential subject issues, from a social and given local authority's point of view, and to define financial effects for a local authority. In order to achieve a required spatial order and sustainable development in the area covered by the study, urban indicators should be prepared. These indicators should constitute a basis for defining the size and type of building-up. As the legislator did not impose strict standards for commercial facilities in this scope, each local authority should define them on the basis of commonly adopted standards and local conditions. The basic and fundamental document, which should be drawn up by local authorities for the purpose of reaching sustainable development of commercial areas is the document called Local Plans of Trade Development. These plans should contain a detailed description of a present (initial) condition and a forecast of planned changes, as well as defining financial effects on a local authority and home trade. Once they have been adopted, the local plans of trade development and of other spheres of economic life in the area of a local authority become an integral part of a local authority's strategy of development or local development plans. According to Kaczmarek [2010], "reasonable and effective spatial planning requires drawing up forecasts on the basic urban functions and land use forms. It concerns, in particular, these forms which considerably influence not only the spatial layout, but also economy and a social urban life, and, as a consequence, functioning of the whole urban organism and its environment". Urban indicators should be prepared after carrying out a detailed analysis of real estate market. Property surveyors are obliged to conduct such an analysis for each valuation surveys. In order to take a correct planning decision, designers should have knowledge on the social and economic conditions of the analysed location and the nearest area. [Bywalec 2003]. A detailed analysis of the real estate market shows supply to demand relations and it provides a lot of important information necessary for taking planning decisions. Combination of information gained from the analysis of real estate market with planning objectives should be reflected in a local plan of trade development. 43

50 2. Local plans of trade development A local plan of trade development constitutes a basic planning document, which allows to determine optimal retail space in the urban area. Scientific research showed that the optimal retail space per one inhabitant is limited, above all, by purchasing power of a potential customer and unemployment rate.[kaczmarek T a and b.]. It is not constant. It is estimated that for reach countries of the EU the retail space per one inhabitant should not exceed 2 m 2. Taking into account the purchasing power of a Polish consumer [Wilk 2005], the optimal retail space per one inhabitant should be between m 2 for large urban agglomerations and between m 2 for areas of lower incomes. While conducting any type of analyses, it is necessary to remember that the total retail spaces reported by consultancy companies and publications differ substantially between each other. These companies sometimes refer to building-up space or total space. There are studies where a utility space or space for lease are indicated. This state of affairs gives distorted pictures in the market analyses, particularly if the analysed spaces were not correctly defined. A lot of controversies may arise out of including the space of detached buildings located near the largeformat stores. It frequently happens that the facilities are not directly connected with the business activity of the large-format stores. The residential zone of potential buyers, which is under the analysis as well, gives rise to numerous difficulties in the interpretation of the results. Some research include only inhabitants of a given city, in other research cities and a few neighbouring areas are considered, while another one includes inhabitants of cities and a district. Depending on the way of defining the indicator, different levels of saturation may be received, which, as a consequence, gives considerably different final results. In this study, the results of retail spaces have been taken on the basis of the issued building permits and the Land Development Conditions Decision for Commercial Buildings, as well as on the grounds of photographic inventory. The effects of administrative decisions on the shifts of supply and demand at the real estate market have been presented by taking as an example the Town of Jaroslaw, located in Podkarpackie Province, Poland. Figure 1.Total retail space in Jaroslaw in the years in thousand m2 Source: author's work The summary of retail spaces in the years prepared on the basis of the issued building permits and the Land Development Conditions Decisions has been complemented by a survey conducted among the shopkeepers of Jaroslaw. It is possible to divide trade in Jaroslaw in the years into several periods on the grounds of conversations and interviews with the shopkeepers. The shopkeepers see the period between 2000 and 2007 as a good time when they were getting satisfying profitability. In the period between 2008 and 2011 the shopkeepers did not gain profitability at the satisfying level, which effected in employees' dismissals and working as sales assistants by the shop owners themselves. Since 2012 over a half of the shopkeepers assume that the incomes gained in the last months force them to take a decision on dissolution of their 44

51 businesses. Since 2013 there has been an increase in the number of vacancies at the commercial property market, particularly in the trade sector. There have been massive re-negotiations of the rent amount with the owners' of the premises. The discounts in this respect reach even 50%. The lack of any perspective for employment of the home shops owners delays the decision on dissolution of their businesses. In the context of such a difficult position of the local shopkeepers, the decision to build next large-format stores of a total space over 40 thousand m 2 in the forthcoming years will lead to a massive wave of bankruptcies in the home trade. The author estimates that only every fourth shop has a chance bigger than 50% to survive on the market. The next important parameters while taking planning decisions should be maps and charts showing quality and quantity structure of the trade within the area of a given city with consideration of demographic projections. In case of a small number of inhabitants per one shop, the drastic change in the structure of retail space, caused by opening a retail chain in the given area, may lead to social tensions and closing small shops. The town of Jaroslaw stands as a particular example of the above situation. For many centuries Jaroslaw has been known as a mercantile town. Its development and a high social status of merchants resulted from its location along the trade routes and the right to store commodities. The town has thrived on trade for many centuries. The common assumption that conducting business activity is a synonym of prosperity led to the situation when there were 2,5 thousand economic entities registered in the town having a population of 35 thousand of inhabitants [Dąbrowski. 2010]. Photographic inventory showed there were over 400 shops in Jaroslaw in May In comparison to Warsaw, the statistical number of persons "maintaining: one shop is considerably lower. (Warsaw) (Jaroslaw) Figure 2. Number of inhabitants per one shop in Warsaw and in Jaroslaw Source: author's work The summary of a number of inhabitants per one shop drives to the conclusion that the local trade market is completely "overheated". The situation when 95 statistical inhabitants of the town of Jaroslaw maintains one shop is economically entirely unreasonable. The realignment in the number of shops will ensue in the forthcoming years. If in the town having 38 thousand of inhabitants there are over 400 shops, 78 hairdresser's establishments and several dozen chemist's establishments, it indicates, on one hand, the complete shortage of basic monitoring of economic area by the local authority, and on the other hand, the business owners' activities without a due estimation of the real needs of the market. The lack of any representatives of the town's shopowners when planning decisions on the location of hypermarkets in the urban space are taken, shows, on one hand, failure to associate by the interested parties themselves, on the other hand, a lack of proper analyses. Carrying out basic economic and urban analyses should protect against spontaneous development of public space. Jaroslaw stands as an example of a town where traditional forms of neighbourhood trade, bazaars and markets should be maintained due to growing social stratification and ageing of the society. Locating large-format trade in the places of a 45

52 high concentration of small shops will evoke a big wave of public outrage and elimination of a substantial part of the local middle class. Keeping a balance between the traditional and modern trade is one of the most essential tasks for the local authorities in the town of so strong historic conditions. 3. Theoretical assumptions for creation of local plans of trade development based on the analysis of the real estate market. The changing reality imposes adjusting activities to current needs [Makowski 2003]. Development and the advances in the economic sciences caused that the research and analyses conducted commonly a few years ago are no longer sufficient to take current decisions. The rules of creating plans of trade development should be established by the local authorities on the grounds of literature and common practice. Such plans should not be developed on ad hoc basis and under the pressure of a potential investor. The situation when the plans are prepared for the money of a potential investor who chooses a company to carry out the work is entirely unacceptable. In that situation it is not possible to expect high reliability of the achieved results. According to the author, adopting a trade development plan by a local authority should be preceded by a traditional analysis of urban indicators described in the literature and in-depth analysis of the real estate market. By the in-depth real estate analysis the author means the analysis of social and economic indicators, the interplay of supply and demand at the real estate market and the analysis of thematic maps with their statistics. Therefore, while planning a large-format store by a local authority, the same research that is carried out by investors should be made, albeit extended with the analysis of financial effects on the home trade and local community. In this context, a plan of trade development of a local authority unit should contain fixed elements (obligatory) and optional, so resulting from local conditions. The basic obligatory elements of a plan of trade development exemplified by the town of Jaroslaw 3.1 The map of existing spaces of commercial facilities (retail). Source: M. Furman, E. Dębniak, J. Dąbrowski The map contains the locations of commercial facilities with the lease space. Using it is possible to assess visually the saturation of retail spaces. 46

53 3.2 The map of lease prices of retail spaces for 1m 2 Source: M. Furman, E. Dębniak, J. Dąbrowski The map of lease prices for 1m 2 in Jaroslaw reflects supply to demand relations at the commercial property market. 3.3 The summary of retail spaces in consecutive years: total, per capita, vacancies, average offer prices for a given standard and location. 3.4 Inventory of commercial facilities The inventory should be performed on the basis of a cadastre, and in order to determine the facts a photographic inventory should be carried out. (The zones of retail centres influence i, j, k and the indifference zone) 3.5 Maps of indifference zones for chosen newly projected locations for p > 0,5 Source: E. Bieleninik, J. Mikuś, Prognoza warunkowa zasięgu handlowego rynku (Conditional forecasting of the market trade zones), Wrocław:

54 On the basis of the map of indifference zones it is possible to determine which of the existing commercial facilities will be put at risk after the completion of a new investment. 3.6 The analysis of financial effects related to location of a large-format store on the existing trade and local community. Basing on the devised plan of trade development containing the elements enlisted above, a local authority increases considerably probability of taking an optimal decision. Local Spatial Development Plan (LSDP) is a basic and general attribute of exercising governance by a local authority. There are a lot of elements which exercise a real influence on the development of public space. If local authorities decide to protect home trade against the influx of retails chains effectively, they can do it by proper wording of provisions in the Local Spatial Development Plan. All that is needed comes down to the obligation of maintaining proper proportions between the retail space and the number of parking spaces and green areas or introducing mandatory protection zones around largeformat stores to deter a potential investor effectively. The other way of protection for home trade may be entering traffic indicators conditioning a given location in the Local Spatial Development Plan. Organisation of local vehicle traffic does not fall within an exclusive competence of local authorities, but it is a very significant decisive element for a potential investor. Imposing a mandatory left turn or right turn in the organization of vehicle traffic may contribute to an investor's refrain from a theoretically feasible investment. Specifying financial effects on a local authority should include total analysis of new workplaces in respect to a place of residence. On a number of occasions, only few people employed before in home trade find employment in newly opened large-format stores. It derives from the fact that the middle-aged people who owned before some commercial establishments have find it difficult to kick earlier habits in case of taking up a job as a sales assistant. Furthermore, these persons have definitely higher financial expectations than young unemployed persons from suburban areas. The retail chains are not willing to employ persons who are aware of the employees' rights, and the shopkeepers belong to this group. The practice shows that opening a new commercial facility generates unemployment in a given city, and it lowers unemployment in the suburban areas. Decrease in a middle class, with the home shopkeepers who belong to this group, adversely affects on the image of a city. Similarly, locating a shopping mall in the city centre may lead to a huge amount of derelict and unkempt vacancies. The increase in the commercial space generates greater proceeds from property tax for a local authority in the initial period. Within a few years liquidation of local shops results in the decrease of proceeds from other properties. The analysis of home trade in the context of competition with retail chains have allowed to present weaker sides with the trade in Jaroslaw as an example. The basic weaknesses of home trade are as follows: 1. Lack of working capital at the suitable level. 2. Lack of basic cooperation between the shopkeepers. 3. Lack of any organization representing the interests of the shopkeepers before the local authorities. 4. Lack of the continuous processional development in the field of trade and economy. 5. Lack of basic knowledge on the ways of expansion of large-format stores and the possibilities of saving home trade. 6. Lack of belief in the effectiveness of any preventive and remedial actions. 7. Lack of social solidarity between the shopkeepers and buyers. 4. Conclusions 1. The fundamental document necessary during development of spatial policy related to location of large-format stores is a Plan of Trade Development (PTD). 2. The analysis of real estate market, prepared by property surveyors, should constitute an essential element of a Plan of Trade Development. 3. Failure to monitor public space by local authorities and the supply by the shopkeepers is a reason behind the disproportion between the traditional trade and the large-format one. 4. The optimal retail space for current financial resources of the inhabitants of Jaroslaw should be equal to about 35 thousand m 2. 48

55 5. In case of carrying out investments of two large-format stores, at least 50% of home trade will encounter difficulties with reaching minimal profitability level. 6. Creating new workplaces in large-format stores and liquidation of the traditional trade in the city centre will bring unemployment at the level of a few hundred people in total. 7. Locating a store at Piekarska Street with a total space of 27,000 m 2 will result in the substantial increase of noise and road traffic. 8. The basic reasons behind a big drop in profitability of the retail trade within the home trade is doubling the retail space, outflow of potential buyers from smaller suburban areas near Jaroslaw and the decrease of purchasing power of a potential buyer. 9. The decrease in income among a considerable part of middle class in Jaroslaw will affect adversely the image of the town. The vacancies will pose a huge aesthetic problem for Jaroslaw. 49

56 2.3. ANALYSIS OF THE REAL ESTATE MARKET IN CONSOLIDATED AREAS Abstract The paper presents the impacts of land consolidation and exchange on real estate transactions concluded on local markets of selected Polish villages. The level and dynamics of changes of concluded transactions have been evaluated within successive years after land consolidation works. The subject nature of transactions has been investigated and systematic division of transactions into free market contracts of sale, and contracts concluded in accordance to tendering and non-tender procedures has been performed. Trends of real estate transactions, depending on types of lands and the percentage of arable parcels, parcels planned for housing purposes and parcels planned for other ways of management in the total number of transactions concerning arable lands, meadows and pastures were also analysed. Key words: real estate transactions, local real estate market, land consolidation and exchange 1. Introduction High demands for land consolidation works exist in Poland, since the average size of a farm equals to about 8 hectares. Comparing to other European Union countries it is not a satisfactory result (the Great Britain - about 68 ha, France - about 42 ha, Germany - about 36 ha); moreover, what is even worse, it is not reflected in the number of performed land consolidation operations. In the seventies of the 20 th century land consolidation works were performed in Poland for the areas of 400,000 hectares every year. Unfortunately, the successive decrease of the number of land consolidation works was noticed in the eighties and nineties, covering less than twenty thousand hectares per year. Starting from 1999 this number has been even smaller - only several thousand hectares are covered by land consolidation works every year. Visualisation of demands for land consolidation, prepared on the basis of results of surveys performed by the University of Agriculture in Wrocław ("Rural areas and arable lands in Poland - results of surveys 1988 ) is presented in Figure 1. 50

57 Legend above 50% of the municipality area between 20% and 50% of the municipality area towns other municipalities Figure 1. Demands for land consolidation by municipalities Source: Development and possible threats for agroecosystems. Part IV. Threats for agroecosystems, Land consolidation works are regulated in Poland by provisions of the act of March 26, 1982 on, land consolidation and exchange (Off. J. 2003, No. 178, item1749 with later amendments) and by provisions of the act of June 14, 1960, the code of administrative proceedings (Off. J., 2013, item 267 with later amendments) in the scope not regulated by the above act. Following the Polish Standard Management of lands in agriculture - Terminology PN- R04151, land consolidation - is a series of designing and technical activities aiming at creation of more favourable conditions for farming, through improvements of the agrarian structure of farms, rational management of expansion of extension of lands, adaptation of property borders to installations of the water melioration system, roads and the terrain relief. The basic objectives of agricultural land management works include: - decrease of the number of parcels in particular farms, what results in increase of their size, - ensuring the access to the public road for each, newly designed parcel, - creation of the functional road infrastructure, - decrease of the number of parcels of irregular shapes, - adaptation of parcel borders to the terrain relief, - elimination of co-ownership or rural properties, as well as unnecessary usufruct of lands, - creation of the complex cadastral documentation within the areas covered with land consolidation works, 51

58 - settlement of legal status and creation of compatibility between the register of lands and buildings and the system of property registers. Therefore the question arises concerning the real estate transactions at this, transformed local market. What is the number of concluded transactions and which properties are the subjects of those transactions? Whether the newly created space and land use structure, which is created following the intentions of participants of the land consolidation process is satisfactory and results in the small number of real estate transactions? Or, on the contrary, such changes stimulate the local market development and, as a result, intensified activities of purchasers and sellers, aiming at conclusion of selling contracts, may be observed? Or, maybe the transfer of property rights results mainly from operations concerning post-consolidation land management? Answers to these questions are the subject of the presented paper. 2. A real estate market and its local nature The real estate market is a complex of relations, which occur between sellers, who submit market offers concerning purchase of properties and investors which apply with demands for specified real estates, supported by the readiness to pay (Gawroński and Prus, 2005). Following the above, the real estate marked consists of: - subject elements (sellers and purchasers), - object elements (goods, i.e. properties or their parts of estates and means of payment), - relations which occur between above elements. The real estate market may be also defined as: - operations and interactions between individuals/agents dealing with purchase, selling, exchange and use and development of real estates, - business activities, resulting in exchange of goods, - an abstractive term, covering all real estate transactions in the country, - an agreement, allowing the seller to meet the purchaser in order to set the price, which will be the basis for exchange of the given real estate, - a set of mechanisms, used for transfer of rights and shares in real estates, - a set of systems, allowing the buyers to meet the purchasers, basing on the mechanism of prices, i.e. the mutual reactions of individuals, who exchange the property rights into other assets (Kucharska-Stasiak, 2005). Due to the spatial criterion, the local, regional, national and international markets are distinguished. It is the local specification results in the sensitivity of real estates on all changes, which occur in the given real estate and in it surroundings. Demographic, economic, social and political changes transfer into the market sensitivity within the given area. Unique features, such as the stability in a particular place, diversification, durability, stress the local nature of the real estate. Due to the above, real estate transactions at the local market are, among others, influenced by: - population (the volume, the age and gender structure, the family structure of inhabitants), - employment (the number of employees, level of salaries, stability of incomes), - inclination to save, - accessibility of credits, - accessibility and prices of lands (Kucharska-Stasiak, 2005). The possible purchaser evaluates the real estate with consideration of local competition. Therefore, the price he/she is willing to pay for the given property is made dependant on relations which occur between demands and supply on the given local market. 3. Objectives, the method of research and characteristics of the analysed area The objective of the work is to analyse the real estate market on consolidated lands, with respect to real estate transactions. Using the example of local markets of selected Polish villages, the level and dynamics of changes of transactions concluded in successive years after land consolidation, was performed. The subject nature of concluded transactions was analysed, together with the systematic division of transactions onto free-market selling contracts and contracts concluded according to tender and non-tender procedures. The trends of transactions, depending on land use types were also checked, as well as the percentage of transactions related to arable parcels, for which the agricultural production was to be maintained at the same level, as well as parcels planned for housing or for other types of management in relation to the number of transactions concerning arable lands and meadows and pastures. 52

59 Analysis was performed for five local real estate markets, for which land consolidation works were completed in the period The following land register districts were covered by the analysis: Siedliska (Miłkowice municipality, Legnica district, Dolnośląskie province), Krajów (Krotoszyce municipality, Legnica district, Dolnośląskie province), Lecka (Błażowa municipality, Rzeszów district, Podkarpackie province), Białka (Błażowa municipality, Rzeszów district, Podkarpackie province), Błażowa Górna (Błażowa municipality, Rzeszów district, Podkarpackie province). Data from the register of prices and values of real estates were acquired for the needs of the discussed analyses; cadastral information available in the WMS Geoportal, e-mapa geosystem, and data included on studies of conditions and directions of municipal management were also used. All real estate transactions, which were concluded at the analysed local markets within the analysed period, i.e. since the completion of land consolidation until December 2012, were analysed. The descriptive and comparative analysis was applied for the discussed purpose. 4. Results of research works Table 1 presents the total number of transactions and dynamics of their changes in successive years, after completion of land consolidation works in five selected Polish villages. It turns out from Table 1 that the number of real estate transactions concluded in local markets, divided into particular, one-year periods, is low and varies between several and a dozen or so. On the other hand, it may be noticed that the number of concluded transactions increases together with the time which passed since the completion of land consolidation works. It is also interesting to observe, that the increased intensity in all five local markets was noticed within 4-6 years after land consolidation works were completed. It means that real estate transactions have not been influenced by the crisis which occurred in real estate markets in the period inpoland. 53

60 Number Dynamic index (2003=100p.) Number Dynamic index (2008=100p.) Number Dynamic index (2005=100p.) Number Dynamic index (2005=100p.) Number Dynamic index (2005=100p.) The number of transactions and dynamics of their changes in successive years after land consolidation, in land register districts Siedliska, Krajów, Lecka, Białka, Błażowa Górna Table 1 Land register districts Siedliska Krajów Lecka Białka Błażowa Górna Transactions Concluded No Years , , , , , , , ,33 Total Source: Author s own study 54

61 Table 2 presents the systematic division of the number of transactions in successive years after implementation of land consolidation works, with respect to the mode of their implementation. Free market transactions as well as transactions concluded according to tendering and non-tender procedures, are listed. Out of the general number of transactions, the majority of transactions were concluded as freemarket transactions in all local markets (register districts: Lecka 69,5%, Błażowa Górna 58,2%, Siedliska 83,7%, Krajów 92,9%, Białka 80,0%). This may result from the fact that the majority of the land use structure within analysed markets is the private property of individuals. The highest sale, 40%, performed in accordance with the tendering procedure, took place in the register district Błażowa Górna. The seller was the State Treasury or the municipality, and the transaction was mainly concluded in relation to the planned destination of purchased lands for forestation. The general rules concerning conclusion of contracts in Poland result from the act of April 23, 1964, the Civil Code (Off. J., 1964, no. 16, item 93 with later amendments). The detailed regulations concerning real estate transactions, following the tendering and non-tender procedures, concluded by public entities in Poland, are regulated by the act of August 21, 1997 on real estate management (Off. J., 2010, no. 102, item 651 with later amendments) and the decree of the Council of Ministers of September 14, 2004 on the ways and terms of tenders and negotiations concerning sale of real estates (Off. J., 2004, no. 207, item 2108). 55

62 Free market Tender Non-tender procedure Total Free market Tender Non-tender procedure Total Free market Tender Non-tender procedure Total Free market Tender Non-tender procedure Total Free market Tender Non-tender procedure Total Table 2 The number of transactions and dynamics of their changes in successive years after land consolidation and their percentage in the total number of transactions, depending on the mode of transactions, in the land register districts Siedliska, Krajów, Lecka, Białka, Błażowa Górna Land register district Siedliska Krajów Lecka Białka Błażowa Górna Type/mode of real estate transactions [number] No Years Total Percentage of the total [%] Source: Author s own study

63 Diagrams 1,2,3,4,5 present the percentage of transactions concluded since the completion of land consolidation works until December 2012, depending on the land use types, in the general number of concluded transactions on the analysed local markets, i.e. in register districts of Siedliska, Krajów, Lecka, Białka i Błażowa Górna. Basic on the following lists it may be stated that the majority of transactions concerned the sale of arable lands, which created the majority of land use types in the analysed local markets (register districts: Siedliska 31%, Błażowa Górna 49%, Krajów 79%, Lecka 65%, Białka 79%). However, it should be stressed that these arable lands also included such areas which were to remain as arable lands in the future, as well as areas, which were planned for housing purposes, forestation or for which investments related to construction or modernisation of line infrastructure were planned. It is also worth to notice that built-up lands were often the subject of transactions (register districts: Siedliska 25%, Lecka 20%, Błażowa Górna 27%). In remaining local markets the number of transactions concluded for built-up lands did not exceed 10% (register districts: Krajów 7%, Białka 9%). The lack od data concerning the land use structure for register districts of Lecka, Białka and Błażowa Górna results from incomplete descriptions of concluded transactions in register of prices and the real estate values acquired from the Starost of the District (Powiat) in Rzeszów. built-up arable lands 30% 25% permanent meadows permanent pastures 5% 31% 8% 1% arable lands lands used by transportation - railways urbanized, non built-up areas Digram 1. The land use structure of lands, being the subjects of transactions in the period in Siedliska village Source:Author s own study 57

64 7% 7% 7% built-up arable lands arable lands 2% 20% built-up arable lands forests 79% orchards urbanized, non built-up areas 65% 3% 10% permanent pastures arable lands no data Diagram 2.The land use structure of lands, being the subjects of transactions in the period in Krajów village Source: Author s own study Diagram 3.The land use structure of lands, being the subjects of transactions in the period in Lecka village Source: Author s own study 6% 9% 3% 3% built-up arable lands forests 11% 27% built-up arable lands forests permanent pastures permanent meadows 79% arable lands no data 49% 7% 2% 4% permanent pastures arable lands no data Diagram 4. The land use structure of lands, being the subjects of transactions in the period in Białka village Source: Author s own study Diagram 5.The land use structure of lands, being the subjects of transactions in the period in Błażowa Górna village Source: Author s own study 58

65 Land register district Transactions concerning arable lands, meadows and permanent pastures, concluded in the analysed local markets within the analysed period, were divided into arable parcels, parcel for housing purposes and other parcels, depending on the possible ways of management and objective of the transaction. The above division was illustrated in Diagram 6. As it turns out from this Diagram, the highest percentage of transactions concluded in every register district, were transactions concerning land parcels planned for continuation of the agricultural production (Siedliska 56%, Krajów 91%, Białka 83%, Lecka 80% and Błażowa Górna 57%). Besides, in the register districts of Siedliska, Białka and Lecka the moderate percentage of transactions concerning lands planned for housing purposes was observed (above 10%), the higher percentage of such transactions occurred in Błażowa Górna (23%). Other transactions concerned lands purchased for the future forestation. Besides, in the Siedliska register district 22% of transactions concerned lands planned for development or modernisation of railway or road infrastructure, what resulted from the post-consolidation land management. Błażowa Górna Lecka parcels planned f or line inf rastructure Białka Krajów Siedliska parcels f or housing parcels planned f or f orestation arable parcels % Diagram 6. Division of transactions concerning arable lands, permanent meadows and pastures, with respect to land management possibilities or to objectives of sale in land register districts of Siedliska, Krajów, Lecka, Białka, Błażowa Górna between completion of land consolidation works and December 2012 Source: Author s own study 5. Conclusions 1. Basing on performed analyses it may be concluded that performed works concerning land consolidation and exchange, performed in the analysed local markets, had the moderate influence on real estate transactions. 2. Real estate transactions concluded in the analysed markets, are influenced by needs of inhabitants and by plans of investments, resulting from the municipal policy, or from the postconsolidation management of lands. 3. Analysis of the real estate market, performed for five register districts, for which land consolidation and exchange works were performed in the past, proved their local nature. 4. The number of transactions concluded in the successive years after completion of land consolidation works is low - several or less than twenty transactions per year. 5. The subjects of sale were mainly arable lands and built-up land real estates. The free market sale between individuals was dominating. 6. The small number of transactions does not allow for using statistical methods for analyses; in the case of reat estate validation it makes the necessity to widen the investigated market with at least one or several municipalities. 7. There is no possibility to acquire reliable results of average transaction prices in successive years after completion of land consolidation works, due to types of real estates and highly differentiated market prices. 59

66 8. Registers of prices and real estate values, acquired from district starosts (powiats), supplied as PDF or Word files, make development of analyses or lists highly difficult. Besides, those registers are not maintained in a uniform way for the entire country, and information stored in these registers is sometimes incomplete. 60

67 2.4. REGRESSION TREE MODEL AS A TOOL FOR CREDIT DECISIONS I Abstract The aim of this paper is to present the model of regression trees, as a tool which can help during credit decision making. For a significant numbers of banks the need to make the appraisal report, depend on the size of the outstanding loan. It is associated with the height of the purchase price of the property. It can be assumed that for a sum less than three hundred thousand zlotys, these banks or independently verify the purchase price, or outsource this activity of the company. Taking into account the fact that most real estate is funded with a mortgage, it can be presumed that gather up a large base of information about such property should not be a problem. The borrower is obliged to provide a preliminary agreement, which guarantees access to these information. Regression tree would in this case, verify the price stated in the contract, using for this purpose, as much information as possible about real estate. It is also possible to include the characteristics of hard-to-describe in classical studies-as position at a specific Street, whether belonging to the elite of the construction complex. The undoubted advantage of this model is the ability to create several schema or a dozen rules of decision-making, leading to the designation of the unit price and its standard deviation. The research was conducted for real estate in the premises in the Cracow city boundaries. Uses the C&RT model (Classification and regression tree) Keywords: features, variables, mortgage, real estate analysis, regression trees,attributes of real estate. 1. Introduction Nowadays it is hard to imagine buying property without the necessary funding it with a mortgage. Many banks make the need to carry out the valuation of the received amount and the nature of the credit market, on which the property is.. Thus allowing themself to carry out inspections by an employee of the banks and to compare the prices of the real estate to others. This point it is worth to consider, as far as the use of statistical methods could streamline this process. The following scheme is proposed to delay real estate price comparison based on several questions that can be answered yes or no. Such a solution allows you to create a binary scheme, leading to the separation of property, for which average unit price is calculated and the standard deviation. 2. A classification tree for regression issues (the basics) In this paper to analyze the data set will be used C&RT algorithm, whose description is shown below. Using a regression tree analysis can be used to replace the 5 stages (Łapczyński, 2010): 1) selection rules for the distribution of nodes, 2) specify when tree node will become the final node. the criterion of alloy, 3) structure tree, 4) to estimate the quality of the model, 5) term that applies processing rules to the end nodes of the observations of the tree. Division of node can be made using one of the rules: the variance for the node is the average value of the subsidiary variable computed with an indication of the variance for appearing in it. The leaf becomes a maximum of homogeneous, when all the observation shall be equal to the average. the average deviation - for the node is estimated median subsidiary variable, as well as the average absolute deviation cases that depend to a leaf. The final node becomes the most homogeneous, when all the observation shall be equal to the median income. Please note that the choice of allocation rules is very important, as they affect the final form of the model (Jasińska, 2012). In order to ensure a higher accuracy of prediction, it should be chosen to select a partition based on the variance of. If a model has to be resistant to unusual observations (outliers remain) and asymmetric distributions of variables should be the average deviation of the sharing rule. In most cases, the interpretation of results in the form of a tree is rather simple. This simplicity is valuable not only because the new cases are quickly categorized (it's easier to check out some conditions than figure a statistics classification for every possible group, or a low number of organized values based on the values of the predictors of non-linear equation model of complex- 61

68 based), but also because of the much simpler "model" explaining why the observations are classified or projected in such a way and not another. 3. The empirical analysis 3.1. Criteria for the assessment of real estate prices indebted according to Polish banks In the work of several analyses of banks, mortgage. Most of them make a verification of the price given in the preliminary contract the size of the loan provided (table 1). In this way may be able to verify the price by an employee of the Bank, which does not necessarily follow the valuation methods and just that can compare for example if 10 real estate prices are similar, as is the case in the case of a credit in Mbank. Table 1 The amount of the loan, for which it is required to draw up an estimate of the sampling frame The name of The need to draw up valuation survey of The ability to accept the purchase the bank Alior Bank the amount of sampling frame 600 thousand PLN for the Warsaw agglomeration for cities > 250 thousand. residents and the loan amount from PLN for cities <250 thousand. residents and the loan amount from PLN price by a bank employee Yes, for amounts lower than listed in column 2-inspection of bank employee Bank Pocztowy Warsaw and around > PLN others > PLN Inspection only in the primary market Deutsche Bank There is no need On the basis of documentation supplied by the borrower Credit Agricole secondary market> PLN Primary market > PLN Do Not. Required assessment performed by a third party-it is not requires a form of sampling frame, price verification of estimated presented in preliminary agreement Citi Handlowy Regardless of the amount of No such possibility BZ WBK Regardless of the amount of No such possibility BOŚ Regardless of the amount, for the For the remaining cases renovation of the property, Eurobank Regardless of the amount of credit: all properties on the primary market, the construction of houses Getin Noble Bank ING MultiBank Nordea For Warsaw > 1 million for others cities> PLN The borrower can provide a valuation survey for crediting purchase of dwelling >1,5 MILION PLN When buying a House with a value exceeding PLN If you purchase a plot of land and build a House above credit on the amount of 800,000 PLN, for properties located in Warsaw For real estate tenancy on the secondary market on the basis of the supplied photographic documentation For amounts lower than in column 2 So, on the basis of photographic documentation When buying Commercial Premises from municipalities, State or cooperative, when the venue will give security loan with a value of less than specified in column 2 In other cases, there is such possibility Pekao Regardless of the amount of No such ability PKO BP for the loan bigger than PLN for mortgages and consolidation loans above PLN dla zakupu nieruchomości lokalowej poniżej PLN 62

69 every purchase of the commercial premises, operationally-dwelling, real estate Raiffeisen For secondary market For primary market Mbank If you have not met all the criteria in column 3 Yes, if: the value of the property does not exceed 1 million, It is possible to compare 10 similar properties on a given local market, the maximum deviation of the market price does not exceed the +/- 15%. Source: Own study, based on information from banks 3.2. Analysis of real estate market of tenancy in the standard units of the city of Krakow Divisions on worksheet units allowed simultaneous consideration of variables "Street" and "subdivision". Allowed to examine which of these attributes play a greater role in price formation. analysis of an adopting the following parameters: 1) Variables: Subsidiary "unit price ; Qualitative variables: "subdivision", "Street", "access", "communication location/environment", "affiliated facility", "floor", "condition", "functionality ; Quantitative variable: "usable area ; 2) Stop rule: Trim according to the variance; Stop parameter is the minimum size: 1; Stop parameter is the maximum number of nodes: 1000; 3) Size: determined on the basis of V-x cross-test, where: The initial value of the random number generator: 1; v = 10; reguła błędu standardowego : 1. 63

70 Standard unit Downtown(Śródmieście) A maximum tree size (96 end nodes) was built, and then it has been trimming process. The optimal size of Model had 3 shared nodes and 4 knots. Divisions at each of the stages were held on the basis of the "Street". Such a way of grouping according to the nature of binary trees C&RT. Despite the fact that the divisions were based on only one variable, the variable leaderboards for each of the stages, it is possible to determine how important is each of the features. Figure 1.C&RT tree for standard unit Śródmieście Source:Own study In the first stage of Division to the left hit real estate located at:sarego Józefa, Szlak, Kochanowskiego Jana, Dajwór, Librowszczyzna, Krakowska, Fenn'a Sereno, Sławkowska, Przemyska, Studencka, Zamenhofa Ludwika Doktora.As a result of the distribution of the node ID 2 property located at the Street "Zamenhofa Ludwika Dokotra" was separated from the others. Node distribution in ID3 based on the following streets: MiechowityMacieja, DobregoPasterza, WłodkowicaPawła, Strzelców, Powstańców, Celarowska, ŁepkowskiegoJózefa, Marchołta. On the basis of the analysis and conclusions reached, chart pattern that features affecting the evolution of most divisions at each stage and the prices in the Downtown of this: street, "district" and "location/environment". These are the features determining the position property, perhaps it is necessary to perform a second analysis for individual districts.buyers increasingly attach attention to, what is the street where is the property than what's district.in order to justify this phenomenon can be tempted to declare that the areas are "artificially" created. District lines have been imposed upstream along the streets. The buyer does not pay attention to it or it will be lived on the right or on the left side of the street, and hence does not analyze, which is District place will point to a specific location, which is represented at figure 2, where the street is the most important and district takes the second place. 64

71 Figure 2.Predictors of severity chart for regression tree standard unit Śródmieście Source:Own study On the basis of established trees (Firure 1) can be described using a property conditional sentences combine them to specific sub-groups: If the properties are set on the streets: Zamenhofa Ludwika Doktora, the transaction price is PLN/m 2 ±1295 PLN/m 2. For the test 11 properties meet this condition. If the properties are set on the streets: Sarego Józefa, Szlak, Kochanowskiego Jana, Dajwór, Librowszczyzna, Krakowska, Fenn'a Sereno, Sławkowska, Przemyska, Studencka, their transaction price is 8947 PLN/m 2 ±569 PLN/m 2. There are 19 real estates which deal wih this conditions If the properties are set on the streets: Miechowity Macieja, Dobrego Pasterza, Włodkowica Pawła, Strzelców, Powstańców, Celarowska, Łepkowskiego Józefa, Marchołta their transaction price is4999 PLN/m 2 ±555 PLN/m 2. There are 13 such real estates. If the properties are set on the streets:29 Listopada Al., Bajeczna, Bobrowskiego Stefana, Bocheńska, Bogusławskiego Wojciecha, Bohaterów Wietnamu, Brodowicza Józefa, Brogi, Cystersów, Daszyńskiego Ignacego Al., Gertrudy Świętej, Grzegórzecka, Idzikowskiego Ludwika, Kielecka, Kolberga Oskara, Kordeckiego Augustyna, Kotlarska, Krowoderska, Lenartowicza, Marii Curie Skłodowskiej, Masarska, Mogilska, Moniuszki Stanisława, Na Groblach, Na Szaniec, Nullo Francesco Pułkownika, Rakowicka, Reduta, Rzeźnicza, Siemiradzkiego Henryka, Starowiślna, Staszica Stanisława, Straszewskiego, Szafera Władysława Profesora, Warszawska, Wenecja, Widok, Wieniawskiego Henryka, Wileńska, Zaleskiego Bohdana, Zyblikiewicza their transaction price is : 7116 PLN/m 2 ±548 PLN/m 2. There are 56 such real estates. Standard unit Krowodrza The analysis was performed on a set of 111. In this case, the group selected trees created a "competent" sizes using the rule of one standard error. Model to satisfy this condition have 6 terminal nodes, at an average price of 6655 PLN/m2 ± 1261 PLN/m2 for the node. Similarly as in the case of analysis for standard units downtown, the most important attributes of the ruling and 65

72 the price turned out to be a "Street", "City", "location/environment". The analysis was performed on a set of 111. In this case, the group selected trees created a "competent" sizes using the rule of one standard error. Model to satisfy this condition have 6 terminal nodes, at an average price of 6655 PLN/m2 ± 1261 PLN/m2 for the node. Similarly as in the case of analysis for standard units downtown, the most important attributes of the ruling and the price turned out to be a "Street", "City", "location/environment".for the real estate market, in which were made, in addition to the "Street" was also a "condition" (despite the fact that he had only a quarter turn as far as the validity of). At the stage of the first Division to the left node hit offices lieing on the streets: Felińskiego Zygmunta Szczęsnego Arcybiskupa, Lubelska, Spokojna, Reymonta, Weryhy - Derowskiego, Piastowska, Prusa Bolesława, Kasztanowa Al., Królowej Jadwigi, Morelowa, Dunin - Wąsowicza Zbigniewa Rotmistrza, Tatarska, Emaus, Księcia Józefa, Focha Ferdinanda Marszałka Al., Wyrwy - Furgalskiego Tadeusza, Salwatorska, Kasztelańska, Kogucia, Jesionowa.The vast majority of these are the streets belong to the District of Zwierzyniec. Offices were grouped just based on location, so you must carry out the analysis on a smaller territorial unit. Figure 3.C&RT tree for standard unit Krowodrza Source:Own study 66

73 The right branch of the tree is more extensive. The second grouping attribute appears(figure 4) here on the basis of which they were separated from each other with different real estate condition. The application of the segmentation is as follows, the real estate market can be divided into the streets more attractive and less attractive. In the less prestigious streets there are offices with very good condition, good and sufficient and evil. Figure 4.The validity of the regression tree attributes chart for standard unit Krowodrza Source:Own study Conditional sentences describing the terminal nodes are as follows: If the properties are set on the streets:felińskiegozygmuntaszczęsnegoarcybiskupa, Lubelska, Spokojna, Reymonta, Weryhy - Derowskiego, Piastowska, PrusaBolesława, Kasztanowa Al., KrólowejJadwigi, Morelowa, Dunin - WąsowiczaZbigniewaRotmistrza, Tatarska, Emaus, KsięciaJózefa, FochaFerdinandaMarszałka Al., Wyrwy - FurgalskiegoTadeusza, Salwatorska, Kasztelańska, Kogucia, Jesionowa their average unit price is 8351 PLN/m 2 ±524 PLN/m 2. For the test set can distinguish 27 real estate that meet the condition. If the properties are set on the streets: Łokietka Władysława and their condition is very good is so the average price on level 4655 PLN/m 2 ±210 PLN/m 2. For the collection to be analyzed can distinguish 3 real estate that meet the condition. If the properties are set on the streets: ArmiiKrajowej, Białoprądnicka, ChełmońskiegoJózefa, JaremyMarii, Konecznego, Łobzowska, ŁupaszkiMajora, Mazowiecka, MyczkowskiegoStefanaProfesora, Na Błonie, Narutowicza Gabriela, Palacha Jana, RadzikowskiegoWalerego, Eliasza, RydlaLucjana, Stachiewicza, Stelmachów, Wrocławska, Zdrowaand their condition is very good is the average price is 7160 PLN/m 2 ±456 PLN/m 2. For the collection to be analyzed can be singled out 22 real estate that meet the condition. If the properties are set on the streets: Białoprądnicka, Kazimierza Wielkiego, Królewska, Łokietka Władysława, Chocimska and their condition is good, sufficient or bad its unit 67

74 price is 6971 PLN/m 2 ±320 PLN/m 2. For the collection to be analyzed can distinguish 8 real estate that meet the condition. If the properties are set on the streets: Armii Krajowej, Chełmońskiego Józefa, Kuźnicy Kołłątajowskiej, Lea Juliusza, Łupaszki Majora, Makowskiego Tadeusza, Myczkowskiego Stefana Profesora, Na Błonie, Potockiego Kostki, Radzikowskiego Walerego Eliasza, Siemaszki, Sienkiewicza Henryka, Stachiewicza, Stanisława Kostki Potockiego, Wrocławska, Żabiniec, Batalionu Skała Ak, Kijowska Al., Kmietowicza, Łobzowska, Wierzyńskiego Kazimierza, Mazowiecka, Narutowicza Gabriela, Pod Strzechą, Prądnicka, Rybałtowska, Urzędnicza. If the condition is good then the average price is 5906 PLN/m 2 ±284 PLN/m 2. For there are set to be analyzed 26 real estate that meet the condition. If the properties are set on the streets: Armii Krajowej, Chełmońskiego Józefa, Kuźnicy Kołłątajowskiej, Lea Juliusza, Łupaszki Majora, Makowskiego Tadeusza, Myczkowskiego Stefana Profesora, Na Błonie, Potockiego Kostki, Radzikowskiego Walerego Eliasza, Siemaszki, Sienkiewicza Henryka, Stachiewicza, Stanisława Kostki Potockiego, Wrocławska, Żabiniec, Batalionu Skała Ak, Kijowska Al., Kmietowicza, Łobzowska, Wierzyńskiego Kazimierza, Mazowiecka, Narutowicza Gabriela, Pod Strzechą, Prądnicka, Rybałtowska, Urzędnicza. If the condition is sufficient or bad is the average price is 5299 PLN/m 2 ±137 PLN/m 2. For there are set to be analyzed 25 real estate that meet the condition. Standard unit Podgórze Study of the relationship between the unit price and the various attributes of the started the creation of a group of 138 of which is model No 135, where the cost of 10-x cross-test amounted to PLN/m2, and the number of leaves 4.Partitions made on the standard unit, confirm the need for repeated analysis for smaller areas. In this case, the variables which most influenced the development of mechanisms for the real estate market (Table 2), turned out to be "street", and then "subdivision". Technical state has appeared in third place, with a validity of more than half less than the most important attribute. This can attest to the fact that the surveyed area most of the premises is similar to each other in terms of condition. The binary nature of the tree meant that on two successive stages, the Division has been based on the "Street". As a result of the first division in the left node has properties which the average price is about 1553 PLN/m2 more than the average price in the node(figure 5).On this basis, it can be assumed that streets : Barska, Józefińska, Kapelanka, Komandosów, Krakusa, Ks. Pawlickiego, Mieszczańska, Nowogródzka, Praska, Różana, Rynek Dębnicki, Saska, Słomiana, Słońskiego, Św. Jacka, are considered to be more "attractive", appearing in the collection. Table 2 Summary of the validity of the regression tree attributes for standard units of Podgórze Atrybut Importance Street 1.00 District 0.87 Technical state 0.46 Lokalizacja/otoczenie 0.43 Floor 0.12 Transport access 0.09 Surface 0.08 Functionality 0.07 Law ground 0.03 Rooms appurtenant 0.03 Source:Own study 68

75 Figure 5.C&RT tree for standard units Podgórze Source:Own study Properties assigned to describe leaves the following (Figure 5): If the real estate is located at: Barska, Józefińska, Kapelanka, Komandosów, Krakusa, Ks. Pawlickiego, Mieszczańska, Nowogródzka, Praska, Różana, Rynek Dębnicki, Saska, Słomiana, Słońskiego, Św. Jacka their average unit price is 7386 PLN/m 2 ±331 PLN/m 2. For the test set can distinguish 35 properties that meet the condition. If the real estate is located at: Borowinowa, Czarnieckiego Stefana, Czarnogórska, Duża Góra, Gromady Grudziąż, Jerzmanowskiego Erazma, Kępna, Kurasia, Lilli Wenedy, Lipska, Łużycka, Mała Góra, Modrzejewskiej Heleny, Nad Potokiem, Niewodniczańskiego Henryka, Nowohucka, Petrażyckiego Leona, Podłęska, Stoszki Ignacego, Ściegiennego Piotra Księdza, Śliska, Teligi Leonida, Wielicka, Włoska, Zakopiańska, Zbrojarzy, Żywiecka. If their condition is very good is the average price per unit is 6281 PLN/m 2 ±477 PLN/m 2. For the test set can distinguish 8 real estate that meet the condition. If the real estate is located at: Borowinowa, Czarnieckiego Stefana, Czarnogórska, Duża Góra, Gromady Grudziąż, Jerzmanowskiego Erazma, Kępna, Kurasia, Lilli Wenedy, Lipska, Łużycka, Mała Góra, Modrzejewskiej Heleny, Nad Potokiem, Niewodniczańskiego Henryka, Nowohucka, Petrażyckiego Leona, Podłęska, Stoszki Ignacego, Ściegiennego Piotra Księdza, Śliska, Teligi Leonida, Wielicka, Włoska, Zakopiańska, Zbrojarzy, Żywiecka. If their condition is good or bad albodostateczny is the average price per unit is 5501 PLN/m 2 ±309 PLN/m 2. For the test set can distinguish 59 properties that meet the condition. If the real estate is located at: Barbary, Białoruska, Bobrzyńskiego Michała Profesora, Bojki, Borkowska, Brodzińskiego Kazimierza, Celna, Dauna, Fredry, Kołodziejska, Kurasia, Makowa, Parkowa, Płaszowska, Przemysłowa, Przewóz, Siemienowicza Kazimierza, Sułkowskiego, Tarnowskiego Jana, Turka Wincentego Księdza, Turniejowa, Walerego Sławka, Warneńczyka Władysława, Zamiejska is the average price per unit is 6244 PLN/m 2 ±308 PLN/m 2. For the test you can set highlight 39 properties that meet the condition. Standard unit NowaHuta For standard unit, NowaHuta was carried out on the basis of the tree in which the division was subject to 5 knots, and the number of leaves stood at 6. In the first stage, a factor for turned out to be a condition, but it was only in second place in the ranking of validity (Figure 6). 69

76 Figure 6.The validity of the regression tree attributes chart for standard units of Nowa Huta Source:Own study Figure 7.C&RT tree for standard units Nowa Huta Source:Own study As for the three standard units, which analyzed previously, the most important attribute of the price makers turned out to be a "Street". Based on this variable were split three nodes. Left and right branch of the tree (Figure 7) are the same size. Subsequent divisions to which the node hit real estate, where the condition was very good or good, based on the "street". For premises belonging to branches of the right can be drawn that the villages real estate on condition sufficient or bad, can be divided into those that lie on the streets more "trendy" and less. In the case of streets which enjoy popularity, it is not so significant difference in condition. In turn, for the streets "worse" this attribute is starting to play a role. 70

77 The following conditional sentences describe the final nodes in the tree (Figure 7): If the property is located on one of the streets or settlements: Czyżyńska, Strusia Józefa, Centrum A, Stalowe, Młodości and her condition is very good, or good is the average price is 6690 PLN/m 2 ± 380 PLN/m 2. For the test set can distinguish 6 properties that meet the condition. If the property is located on one of the streets or settlements: Sołtysowska, 2 Pułku Lotniczego, Na Wzgórzach, Na Stokuand her condition is very good, or good is the average price is 5233 PLN/m 2 ± 172 PLN/m 2. For the test you can set highlight 19 properties that meet the condition. If the property is located on one of the streets or settlements: Albertyńskie, BohaterówWrześnia, Centrum C, Dywizjonu, Jagiellońskie, Kamionka, Kazimierzowskie, Kolorowe, KurzeiJózefaKsiędza, Ogrodowe, Okulickiego, Oświecenia, Piastów, Słoneczne, StrusiaJózefa, Szkolne, Teatralneand her condition is very good, or good is the average price is 5928 PLN/m 2 ± 300 PLN/m 2. For the test you can set highlight 24 real estate that meet the condition. If the property is located on one of the streets or settlements: Piastów, Tysiąclecia, Bohaterów Września, Kuczkowskiego Mikołaja Księdza, Jagiellońskie, Albertyńskie, Kościuszkowskie, Kolorowe, Na Skarpie, Sportowe, Szkolne, Centrum Eand her condition is sufficient or bad is the average price is 5401 PLN/m 2 ± 239 PLN/m 2. For the test you can set highlight 26 properties that meet the condition. If the property is located on one of the streets or settlements: Centrum A, Centrum B, Centrum C, Centrum D, Dywizjonu, Górali, Hutnicze, Kalinowe, Krakowiaków,Na Stoku, Na Wzgórzach, Ogrodowe, Słoneczne, Stalowe, Szklane Domy, Teatralne, Urocze, Wandy, Zgody, Zielone, 2 Pułku Lotniczego, Handlowe, Kazimierzowskie, Na Lotnisku, Niepodległości and her condition is bad then the average price is 4281PLN/m 2 ± 215 PLN/m 2. For the test you can set highlight 12 properties that meet the condition. If the property is located on one of the streets or settlements: Centrum A, Centrum B, Centrum C, Centrum D, Dywizjonu, Górali, Hutnicze, Kalinowe, Krakowiaków,Na Stoku, Na Wzgórzach, Ogrodowe, Słoneczne, Stalowe, Szklane Domy, Teatralne, Urocze, Wandy, Zgody, Zielone, 2 Pułku Lotniczego, Handlowe, Kazimierzowskie, Na Lotnisku, Niepodległości and her condition is sufficient then the average price is 4952PLN/m 2 ± 307 PLN/m 2. For the test set can distinguish 37 properties that meet the condition. 4. Conclusions Presented approach could successfully be used by banks to real estate prices, which is expected to be secured by mortgage debt. It allows you to specify the unit price along with the standard deviation, which is the criterion in Mbank. The analysis was based on valuable available in preliminary agreement, possibly enriched with photographic documentation, or personal inspection, thus such a solution requires no additional costs. Because the analysis was conducted for units of the city of Krakow, the standard, you can assume that the smaller cities it is possible to create one model, with no extra line breaks. Banks on a regular basis could update their database and from time to time review the how to create a tree. This method would ensure transparency of rules verification of property prices for all outlets, while the time to wait for the promise could be shorter. ithis work is financed from funds for science realized at AGH University of Science and Technology, allocated for the year

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79 3. GIS AS INSTRUMENT OF PROPERTY MARKET RESEARCH 73

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81 3.1. APPLICATION OF GIS SPATIAL ANALYSIS FOR MAPPING OF AVERAGE PRICES OF DWELLINGS Abstract The average prices of residential are important information for people, who want to buy or to sell an apartment. The spatial distribution of these prices in the area is shown on the map of average prices of dwellings. GIS spatial analysis are applied for mapping. The paper presents vector and raster analysis of spatial data and cartographic presentation methods. The second part of the paper describes the stages of mapping of average house prices using spatial analysis and drawn up raster and isoline maps. Theses maps were compiled for part of Olsztyn using ArcGis Keywords: GIS, spatial analysis, cartographic presentation methods, map of average prices of dwellings 1. Introduction The average prices of real estates are important information for participants of the real estate market among others for people buying or selling apartments. The spatial distribution of the unit price of an apartment in the area is shown on the map of average prices of dwellings. GIS spatial analysis are applied for mapping. This paper was developed on the basis the thesis (Żurek 2013) about the issues. The lexicon of geomatics of the Polish Association for Spatial Information defines the spatial analysis in the following way: it is analysis, which aims at extracting or acquiring the new spatial information, in particular, geographic information. [ ] It enables modelling of complex geographic phenomena, relations and processes, serving for their monitoring and forecasting. Due to the applied methods spatial analyses may be divided into: horizontal analyses concerning relations between objects and phenomena, within one information layer, such as: neighbourhood of parcels, the course of borderlines, determination of the most effective route from point A to point B, with consideration of assumed criteria, vertical analyses, which analyse relations between objects and phenomena concerning various elementary surfaces, which occur on particular information layers (Brach 2012). 2. Vector and raster analysis of spatial data Methodology of spatial analyses depends on the applied data model. Two basic spatial data models, the vector and the raster model, were determined. The vector data model is usually applied for representation of discrete data, and the raster model - for representation of continuous data. Appropriate sets of tools are applied for the needs of spatial analyse of vector and raster data. Data stored in both models may be used at the same time, due to the possibility of data conversion. The basic functions of the vector analysis include: Visualisation (classification and symbolisation). This concerns the preliminary analysis of spatial data. Visualisation aims at an appropriate selection of the sequence of displayed layers, in order to extract the maximum information, such as determination of values which considerably differs from other values, looking for regularities in data distribution, identification of relations between data, as well as data verification. Layers are usually arranged in the following sequence: the polygon layer at the bottom, then the line layer and finally the point layer. The point layer. Values in the attribute field may have the features of quantitative or qualitative data. Quantitative data may be presented by means of symbols, which size depends on the attribute value, and the qualitative data are presented by means of symbols or a colour palette. The line layer. Depending on the number of line layers data may be presented by means of one or several types of lines, such as dashed line, continuous line, lines of diversified thickness or colours; this concerns both, the qualitative and quantitative attributes. Marking the line direction by means of an arrow symbol is the special way of visualisation of a line. 75

82 Polygon layer. This layer may be presented in many ways. The image of a polygon consists of its outline and filling. The qualitative data may be presented by means of a colour palette. i.e. the gradual changes of the colour intensity, from the minimum to the maximum level. The quantitative data may be presented by means of classification. Data is divided into appropriate subsets, the, so-called, classes. Between classes several limit values are specified. The following methods of division a set into classes may be mentioned: natural breaks Jenks; quantile; equal interval; defined interval; standard deviation. Attribute selection. By means of this analysis, such objects may be selected and marked, which attribute values meet the specified logical conditions (defined by means of the SQL language). The result may be marked in the table - a subset of data with the displayed image of the selected object or the new layer with results (e.g. SHP). When using ArcGIS software, the analysis of vector data may be performed by means of attribute selection Select By Attributes and by means of Select By Location using the following methods: Create a new selection; Add to current selection; Remove from current selection; Select from current selection. Selection based on spatial relations. For all spatial objects (point, line, polygon) defined spatial relations with objects from other layers exist. By means of the discussed selection it is possible to find objects, which meet required attribute conditions. The applied spatial queries include: Intersect, Overlap; Are within a distance of; Are within; Are completely within; Contain; Contain Clementini; Completely contain; Have their centroid in; Share a line segment with; Touch the boundary of; Are identical to; Are crossed by the outline of. Buffering. It consists of determination of a zone basing on the specified distance (the limit value) to selected objects (points, lines, polygons). Polygon objects may be buffered both, from inside, as well from outside, points and lines - only from outside. Buffers may be mutually overlapped - when connected, they create buffer zones. Overlaying. This function consists of creation of a layer which includes thearea of interest only, i.e. of overlaying layers, one on another, connection of geometry and attributes of layers. Such overlaying may be performed by means of three commands: Clip. As a result of this function a new layer is created, which includes objects located inside the cutting polygon; Intersect. This function finds the common areas of a specified type (points, lines,. polygons); the common geometry and attributes of both classes of objects is the result; Union (Overlay). This function concerns only the polygon layers and it consists of maintenance of all elements of layers, which are overlaid. Generalisation.It aims at the decrease of the number of points and sections in the given layer, assuming the small information losses. The D-P (Douglas-Peucker) algorithm is the most popular algorithm for generalisation of line objects, i.e. the reduction of points of apex (Głażewski 2007). 76

83 The basic functions of raster analysis include: Visualisation. One-channel raster maps may be presented by means of three methods. Firstly, various colours may be assigned to various values, which occurs on the map. The second possibility is to perform classification of raster quantitative data, similarly to the case of vector data. The third method consists of increasing the contrast of the photograph. Multi-channel raster maps are presented by means of three channels. If rasters have the Value Attribute Table assigned, it is possible to perform the preliminary data analysis. Local functions, being the mostly used group of raster analysis methods. The following methods may be distinguished: Reclassify means to assign values from defined intervals on the "old map" to the new values on the "new map". A typical utilisation of this function is creation of the qualitative maps, as well as connection of cells into subsets, the, so-called, zones, for which successive analyses may be performed; Combine. This function identifies areas which meet the specified combination of values, basing on two or more raster maps; Cell Statistics. This function aims at calculation of selected statistical information (the average value, median, standard deviation, the extension, maximum and minimum, sum, the most often and the most seldom values, diversification) from cells of the raster maps; Map algebra. Allows to perform multi-criteria spatial analyses, using raster data and specifying relations between the data. The syntax of this script language is simple; it utilises elementary logical operations, such as the common part, the logical sum, for calculations on a map. This tool allows for performing four main operations: local operation - comparison of attributes of a given pixel with corresponding (with respect to location) features from other information layers; focal operation - analysis of the neighbourhood of a given cell; global operation - determination of values which describe the entire thematic layers (e.g. median, extension); zonal operation - analysis of blocks of pixels of the same attributes (Gotlib et al., 2007); The neighbourhood function. Values of cells on the resulting map depend on the adjacent cells only. Statistics calculations may be performed by means of a function, which utilises the, so-called, movable window, Focal Statistics and Block Statistics, and connection of cells of the raster map (grouping) is performed by means of the Region Group function. Zonal functions. They are the functions which calculate statistic data for each data set of the zone, basing on values of an arbitrary raster (Zonal Statistics) and characterising the geometry of zones as objects (Zonal Geometry). Global functions. They are the functions which assign values to a pixel, basing on analysis performed for the entire raster. Two functions are distinguished: Euclidean Distance - which determines the map of distances to defined objects and Euclidean Allocation - which fills "empty" cells No Data with no empty values from adjacent cells. Interpolation. It means the exchange of point data into raster, continuous fields of quantitative or qualitative variables. The following methods of interpolation of quantitative data are distinguished: Inverse Distance Weighted IDW - the value assigned in space is the result of interpolation of values from measuring points, from the neighbourhood defined earlier (Cascadoss 2009). Spline - the values of cells are estimated by means of a mathematical function; this leads to a smooth surface, which crosses exactly two initial points (e-gis educational centre). Natural Neighbour - a value, which occurs in the nearest measuring point is assigned to each point of the space (Cascadoss 2009). 77

84 3. Cartographic presentation methods GIS software offers wide abilities to visualise data using various cartographic methods. Creation of a correct and useful thematic map requires the specialised knowledge from the user. Appropriate selection of the scale and the nature of phenomena related to presented objects, as well the knowledge of data presentation are necessary (ZETO IT Centre). According to the K-3 Technical Instruction, eight methods of data presentation are distinguished, with consideration of qualitative and quantitative method groups. Qualitative methods Signature method. In the case of this method, location of objects and phenomena are presented by means of signatures (symbols). Signatures are divided into geometric, symbolic, image, alphabetic and numerical symbols; Method of ranges. This method is used for presentation of the presence of the given phenomena on the map (e.g. occurrence of particular species of animals and plants). It is possible to overlay ranges one on another; they may be open or closed; Chorochromatic method. It is the extension of the method of ranges. It consists of dividing the area into field of diversified quality. This method is, for example, applied on geological maps, as well as on soil and administration maps (Gisplay). Quantitative methods Cartodiagram method. The objective of this method is to present the intensity of a given phenomena within distinguished surface units (usually in the form of flat figures or solids located directly on a map), using diagrams. Point, linear (vector, band) and surface (natural, geometric, eumorphic) cartodiagrams are distinguished; Dot (point) method. The objective of this method is to present distribution of phenomena on a map using dots, which symbolise the number of objects, but not particular objects. The topographic dot method (single-weight and multi-weight method) and cartographic dot method (single-weight and multi-weight method) are distinguished (Gisplay); Cartogram method. The objective of this method is to present the intensity of a given phenomenon (e.g. the population density) within a given area (as province) using the diagram (or hachure); Isoline method. Phenomena are presented by means of a line, which connects points of the same value of a certain feature. The following isolines are distinguished: isolines which describes the terrain relief (determined basing on direct surveys in the field or as a result of interpretation of aerial photographs): o isohypses (contour lines) - lines connecting points of the same elevation, o bathymetric contour lines - lines which connect points of the same depths; isolines which characterise climatic and hydrological features (determined basing on interpolation from the existing measuring points): o constant pressure lines - lines which connect points of the same pressure; o isoamplitudes - lines which connect points of identical amplitudes; o isotherms - lines which connect points of the same temperature; o isohels - lines which connect point of the same illumination by the Sun; o isohyets - lines which connect points of the same quantity of rainfalls; o lines which connect points of the same speed of the wind; o isohalines - lines which combine points of the same level of water salinity; o lines which connect points of the same beginning of flower blooming; isolines which characterise distances: 78

85 o equidistant lines - lines connecting the same distances from the limits of the central area; o isochrones - lines connecting the same time required to travel from the given point. Dasymetric method. This method presents areas which are characterised by phenomena of the same density (step nature). 4. A map of average transaction prices of dwellings A map of average prices of dwellings is the cartographic product, which presents the spatial distribution of average, unit prices of dwellings, located within a given area. It is the aid for the players in the real estate market, at the stage of its preliminary analysis, including the owners of dwellings, who intend to sell the property, as well as for individuals, who intend to purchase it. The advantage of this map concerns its relative simplicity and the speed of development, which result, among others, from utilisation of GIS spatial analysis. Such map may be accessible in the form of ready-to-use cartographic products, as well as it may be generated on-line, by a map portal. It may be produced as a raster or as a isoline map. It should be also noticed that that this map may be useful in the process of the real estate market analysis, performed by a real estate expert for the needs of valuation, in particular, for the needs of evaluation of attractiveness of locations of given real estates. At the same time, it is worth to remember, that the presented price is the approximation of the market value of the real estate and it cannot be directly used in the real estate market analysis. 5. Development of a map of average prices of dwellings for a part of Olsztyn Creation of a map of average prices of dwellings for the south-eastern part of the city of Olsztyn, was commenced from acquisition of source data from the cadastre and the register of prices and values of real estates, which is maintained for the city of Olsztyn. This data, recorded in SWDE format, was converted to 2 files of the relational database in *mdb format, using SWDE Manager. The resulting files were connected in one file of the relational database (Olsztyn.mdb). The basic part of works aiming at creation of the map of average prices of dwellings for the part of Olsztyn was performed with the use of ArcGIS 10.1 software package, including Model Builder, which allows for automation of the following operations. Bolded names of files are own names, created for the demands of the discussed project. At the beginning the project called Projekt_SIP.mxd was created (in the"2000" co-ordinate system, zone 7), the following layers were imported form the file geodatabase (olsztyn.mdb) to this project: - SHP files of parcels and buildings from the land and buildings registration (Buildings, parcels) - tables of parcels, buildings, premises, transactions and dictionaries of rights to parcels, buildings and premises, from the register of prices and values of real estates: OPLATA_RT_BUDYNEK (fees building); OPLATA_RT_DZIALKA (fees parcel); OPLATA_RT_LOKAL (fees premises); OPLATA_RT_SLO_PRAW_BUD (fees right, building); OPLATA_RT_SLO_PRAW_DLK(fees right, parcel); OPLATA_RT_SLO_PRAW_LOK (fees right, premises); OPLATA_RT_SLO_STRONY (fees, parties); OPLATA_RT_TRANSAKCJE (fees, transactions). The next step was creation of centroids of buildings (points located inside objects, which represent the geometric "centres" of areas) with the use of the tool from ArcToolbox: Data Management Tools Feature Feature To Point, in order to create the layer of centroids from the layer of Budynki_Centr by means of Model Builder. The important element of the described process was calculation of the price of 1 sq.m. of dwellings, for every transaction, connected with the centroid of the building. The result of this operations was the table (Translokale_3a) with centroids of dwelling transactions, related with buildings. The following operations should be performed in order to create this table: create relations between the following tables in MS Access: OPLATA_RT_BUDYNEK (fee, building); OPLATA_RT_LOKAL (fee, premises); OPLATA_RT_TRANSAKCJE (fee, transactions); OPLATA_RT_BUDYNEK (fee, building. add the field Cena_1m2 (price_1 sq.m.) to the table Budynki_Centr; 79

86 assign transactions to centroids; as a results the table Translokale was created; copy data from the table Translokale, which was not physically created (it was created in virtual memory only), to a new table Translokale_2; calculate prices of 1 sq.m. of dwellings; as a result a new table Translokale_3 was created. Then, transactions from the table Translokale_3 were selected according to the following criteria: real estate type: premises, functions of premises: dwelling, price of 1 sq.m., transaction in the price interval 500 zl zl, location within the following cadastral blocks: 99, 101, 102, 105, 106, 107, 110, 111, 112, 114, 118, 119, 125, 126, 127, 133, 160, what resulted in the output table Translokale_4a. In order to create the map of average transaction prices of dwellings for 2012, selection of transactions included in the table Translokale_4a was performed, according to the transaction date: the year 2012, obtaining the table Translokale_4a_D5. Then, transactions were selected from this table according to the interval of prices of 1 sq.m., which was determined earlier. The price interval for transactions of the given year is settled as the interval of values <u- 2σ, u+ 2σ>, where u- is the arithmetic mean for the set, σ - the standard deviation value. About 95% of transactions were selected this way. Selected transactions were recorded in the table Translokale_4a_2012. The next stage of creation of the map of average prices of dwellings was interpolation of selected centroids to the raster and cutting the raster to the limits of the analysed area. Interpolation of centroids included in the table Translokale_4a_2012 to the raster Translokale_5a_2012, considering the price of 1 sq.m. of dwellings, was performed with the use of the tool from ArcToolbox application: Spatial Analyst Tools Interpolation IDW. The above raster was then cut to the limits of the are of elaboration, with the use of the tool Analysis Tools Extract Clip and called Translokale_5a_2012Clip. In order to create the raster map, classification of values of the above raster was performed. For this purpose two following methods were applied: Manual. In the raster values were divided into 8 classes, with the interval of 400 zl, into the following groups: o below zl; o zl zl; o zl zl; o zl zl; o zl zl; o zl zl; o zl zl; o above zl. The resulting raster (M1_2012) is a map at the scale of 1:20000 on the background data of the Buildings layer; it is illustrated in Figure 1. Standard Deviation, where limits of classes are distances from the arithmetic average of the set in the form of multiples of standard deviations. As a result of classification the following groups of values for each raster were created (rounded to zlotys): o zl zl; o zl zl; o zl zl; o zl zl; o zl zl; o zl zl; o zl zl. The resulting raster (M2_2012) is a map at the scale of 1:10000, on the background data of the Buildings layer; it is illustrated in Figure 2. Then, the isoline map of average prices of dwellings was created. For this purpose a tool was selected from the ArcToolbox application, Spatial Analyst Tools Surface Contour was used. Input raster is Translokale_5a_2012Clip and output polyline features is C_2012. Contour interval has been set as 250, and the base contour as 500. The isoline map was created at the scale of 1:20000; it is illustrated in Figure 3. 80

87 Figure 1. A map of average prices of dwellings for the south-eastern part of the city of Olsztyn, according to prices for 2012, at the scale of 1:20000 Source: Żurek,

88 Figure 2. A map of average prices of dwellings for the south-eastern part of the city of Olsztyn, according to prices for 2012, at the scale of 1:10000 Source: Żurek,

89 Figure 3. A isoline map of average prices of dwellings for the south-eastern part of the city of Olsztyn, according to prices for 2012, at the scale of 1:20000 Source: Żurek, Conclusions The possibilities to apply GIS spatial analysis for the needs of creation of a map of average prices of dwellings, are presented in the paper. Utilisation of ArcGIS 10.1 software package, including Model Builder, allowed for automation of the map creation process. Two raster maps and one isoline map were created. Tools included in ArcToolbox application were, among others, used to create those maps: Data Management Tools Feature Feature To Point, Spatial Analyst Tools Interpolation IDW. Analysis Tools Extract Clip Spatial Analyst Tools Spatial Analyst Tools Surface Contour. In the case of a raster map classification of the raster values was performed using two methods: Manual and Standard Deviation. It seems that the map created with the use of the Manual method is easier readable due to the fact that more people got used to using the "rounded numbers". On the other hand, when one compares the isoline map with raster maps, presentation of average prices is more readable using the raster than in the case when lines of the same, unit prices of dwellings, are used. It should be noticed that the simplicity and speed of creation of the above maps, being their considerable advantage, results, among others, from the use of GIS spatial analysis tools, as well as that they may be published by the ArcGIS online services, what will ensure access to those maps for many interested individuals. 83

90 3.2. THE MAP OF LAND PRICES AND THE LAND VALUE MAP IN POLAND AND CHOSEN EUROPEAN COUNTRIES Abstract The value of land and the average price of land is very important information in the process of land management. They are used by public bodies, companies as well as private individuals. The spatial distribution of unit average prices and unit values in relation to land situated in the area is presented appropriately on the map of average land prices and the land value map. These types of maps, in particular land value maps, are compiled in many European countries, but they differ. The paper presents the concepts of map of average land transaction prices and land value map, which are included in the Polish legal acts. The rules for compilation of these maps are given too. Then in the paper land value maps, compiled in selected 3 European countries, are described and compared, given such information about them like: name of map, bodies responsible for their compilation, the area of the country covered with maps, payment for access to maps, the use of GIS and CAMA and direct connection to the cadastre. Keywords: the map of land prices, the land value map 1. Introduction Land value maps are compiled in most European countries for decade. These maps contain information about the average value of land within a given area. They are often constructed in the process of mass appraisal for taxation purposes. They are used for another public and private needs too. They are named value zones maps, standard ground value maps as well as value maps. Sometimes instead of average values of land there are average prices on the map. This kind of map is named the price map or the map of average land transaction prices. At the beginning land value maps were drawn in analog form. This process took a lot of time and cost a lot. Nowadays computer mass appraisal methods and GIS are used in order to compile these maps in a short time and cheaper. They allow to estimate property values as accurate as possible by using mass valuation methods. 2. The map of average land transaction prices and the land value map in Poland 2.1. The map of average land transaction prices The map of average land transaction prices is the new term in the polish legal regulations. It was defined by the Decree of the Council of Ministers of October 3, 2011 on types of cartographic thematic and special works. Following 2 of the above act this map is to be generated in the digital form and it is to present the diversification of average transaction prices of lands, assigned for building purposes, and arable lands; this map should be based on the data collected by district starosts in the registers of prices and property values, in statistical records, as well as on analyses and lists, which characterise the property market for the entire country in relation to the basic, three-level territorial division of the country. The task concerning preparation and distribution of the above map was assigned to the Surveyor General of Poland. In the process of construction of the map of average land transaction prices, this body co-operates with other public administration bodies, in particular with district starosts, with the minister responsible for building issues, spatial economy and housing and with the President of the Main Statistical Office. The detailed rules concerning generation of the average land transaction prices have not been developed yet. As it results from the above mentioned 2 of the Decree, the average land price should be determined for a municipalities, separately for lands assigned for building purposes and for arable lands. The average price for the areas assigned for building purposes may be calculated on the basis of transaction prices of non-built up properties, which are to be built-up with buildings other than farm type buildings and, the average price of arable lands should be based on transaction prices on non-built-up arable properties. Transaction prices of both types of properties are stored in the register of prices and values of properties. It is required to determine the average price. It may be determined, among others, as: 1) the arithmetical mean for the set of all unit transaction prices of the given property type for the assumed period, 84

91 2) the arithmetical mean for the set of unit typical transaction prices of the given property type for the assumed period. This means the necessity to determine the interval of typical unit prices. This interval may be defined, among others: a) on the basis of the arithmetic mean and the standard deviation, b) as the interval of confidence of the arithmetical mean. 3) the median of the set all unit transaction prices of the given property type for the assumed period. In 2012 the Surveyor General of Poland commenced the activities aiming at development of the map of average land transaction prices. At present, they are in the preliminary phase of implementation The land value map The land value map is the cartographic product, similar to the map of average land transaction prices, since it presents the value of lands. However, the maps present the different types of values. In the case of the land value map they are the (market, cadastral) values and not the average prices. Those values refer to lands located within a given area, which expansion is relatively smaller than the area of a municipality. In Poland this term has not been defined yet and the rules concerning creation of such maps have not been determined. Regulations concerning taxation maps are the exception; they are a particular type of land value maps (Budzyński 2011). Comparing to other European Union countries, which are discussed further in the paper, in Poland, the land value maps are, at present, seldom created. At the same time, scientific and research works, aiming at elaboration of rules of construction of such maps, have been continued (Cellmer, Kuryj 2003), (Źróbeket al. 2004), (Sawiłow2008), (Budzyński 2011). The land value maps may be divided by the production technology into isoline maps, which present the extension of values by means of isolines the lines of the same value of lands and object oriented maps, which present separate zones, characterised by the uniformity of factors influencing the prices and thus, the value of lands (Źróbek et al. 2004). The rules of separation of those zones depend on the assumed model or attribute approach. Further in this paper the basic rules of creation of land value maps, according to the model approach discussed in (Źróbek et al. 2004), are presented. In the model approach, the boundaries of uniform zones are determined on the basis of price generating factors property market features of non-built-up properties, determined in the process of analyses of the property market. This analysis is performed on the basis of collected data concerning sales transaction, in the course of monitoring of the property market, which mostly covers the area of a municipality. Boundaries of zones are generalised. Then, properties typical with respect to price generating factors, are defined and described for determined uniform zones. The last stage of generation of the land value map is determination of the unit value of the area of the typical property, performed with the use of the prior constructed model. Below the land value map for the area assigned for building purposes (one-family housing area) for the locality (district) of Opacz Kolonia, neighbouring Warszawa, the capital of Poland. This map was created as the object oriented map, in the model approach. 85

92 Figure 1. The land value map for one-family housing area for the district of Opacz Kolonia. Source: work by Tomasz Budzyński and Rafał Flieger. As it was mentioned, the term taxation map is used in the Polish legal regulations; such map is a particular type of the land value map. According to Art. 169 of the Act on property management, taxation maps are created by the body which maintains the property cadastre, i.e. by the district starost (the president of the city, which has the district rights), on the basis of valuation of representative properties, performed by the property valuers. The starost, in co-operation with the mayor, appropriate for the particular area, or the city president, makes the taxation maps available for the public for the period of at least 21 days and information about the public presentation is advertised in a way specified in this Article. Then everyone, who may be legally interested in settlements resulting from the taxation maps may present any claims within the period of public presentation of those maps. The submitted claims are considered by the starost and presents them to the municipal council, appropriate for the area where the property is located, together with the proposal of resolution, amending the taxation maps. The municipal council makes the resolution concerning the assignment of the official force to the taxation maps, in which also resolves the way of resolution of presented claims. Individuals which are not satisfied with the method of resolution of the presented claims, have the right to submit their claims to the administrative court. At the end of the discussed process the resolution of the municipal council concerning the assignment of the official force to the taxation maps is advertised in the voivodship (province) official journal. It should be added that taxation tables, concerning buildings and premises, are also created in the described process. The taxation map is created on the cadastral map, with specification of boundaries of taxation zones and their identifiers. The above taxation zones are the zones separated due to similar factors, which influence the market value. It should be noticed that the unit land value of the 86

93 representative property in the given taxation zone is not presented on the taxation map; it is presented in the list of the taxation zones. This list also includes: the identifier of the taxation zone, the identifier of the cadastral parcel, the type of land, features of the representative property, factors used for correction the differences between the features of the representative property and features of other properties in the given taxation zone and unit cadastral values of particular land parcels. 3. Land value maps in chosen European countries 3.1. Sweden In Sweden land value maps named value zones maps are compiled in the process of real property taxation - general real property assessment for taxation purposes. Above process is regulated by The Property Assessment Act and The Property Assessment Ordinance (Roos 2006). The Swedish authority that is responsible for the taxation of real property is The National Tax Board. As a complement to the legislation, The National Tax Board publishes instructions and general advice to support taxation activities (Roos 2006). Lantmäteriet (National Land Survey of Sweden) plays important role, especially in the first stage of taxation - preparatory work, being responsible for most of the technical part of the assessment work. During this stage value zones maps are compiled. The preparatory work in which the authorized valuers are engaged and which precedes the tax assessment can be divided into the following processes: - Following up and evaluating the previous tax assessment concerning division into value zones; - Examining and sorting out unwanted materials in the area-related compiled price data; - Describing standard properties and collecting other relevant information concerning the real property market; - Carrying out test assessment and formulating recommendations for the division into value zones and standard levels (Roos 2006). According to present law regulation, which was introduced in 2003, all real properties are subject to a general real property tax assessment every sixth year, followed by a simplified assessment three years later (Roos 2006). All of them are divided into the following different types of property unit: single-family housing units, agricultural units, apartment building units, industrial and other units, in order that all 3.2 million real properties will not be assessed during the same year. So, in short, the maps cover the entire country and are compiled in different time, depending on thetype of real estate. The assessed values are75% of the market value for the reference-level year - two years prior to the tax year. During the preparatory work, concerning particularly single-family housing units, GIS is used to improve the quality and increase the efficiency of the work processes. GIS is applied, inter alia, for: examination and sorting out of purchases, describing the typical single-family house, overview of the division into value zones and test assessment (Roos 2006). In Sweden the assessed values and basis for valuation - inter alia value zones maps, are included in Taxation Register, which is integrated with Real Property Register (the Physical cadastre) and Land Register within Swedish Integrated Cadastral System (Lauri 2001). So land value maps are connected with cadastre in Sweden. Access to Swedish Integrated Cadastral System, including land value maps, is via internet. It is free of charge. 87

94 Figure 2. Excerpt of value zones map. Source:Hofren, Germany In Germany land value map is named a standard ground value map ( Bodenrichtwerte ) (Kertscher 2008). The bodies, which are responsible for compiling this kind of map, are the committees of experts on real estate values ( Gutachterausschüsse für grundstückswerte ) (Kertscher 2009). The tasks of these committees including Bodenrichtwerte are fixed in in the German Federal Building Code ( Baugesetzbuch (BauGB)) (Seidel 2005). These committees of experts were first introduced by BauGB in Their aim was and still is to provide transparency in the real estate market in order to prevent excessive and erroneous trends (Kertscher 2009). The responsibility for the committee of experts generally lies with the federal state. Each committee of experts covers a town or district. Its members are local real estate experts, such as architects, building surveyors, estate agents, experts from banks and sworn experts. (Wanzke 2009). Each committee of experts has an office, which is usually located at the land surveying and cadastral office or the town planning office. The office receives copies of all real estate contracts and the relevant information is fed into a purchase price database ( Kaufpreissammlung ).On this basis, the committees of experts produce an annual publication of data in the form of a standard ground value map ( Bodenrichtwerte ) and a real estate market report (Grundstücksmarktberichte). They prepare valuation reports on fair market value and rent value (Wanzke 2009). Today, most the committees of experts prefer to make use of networking and GISsupported valuation-systems. (Kertscher 2007). Standard ground values on the maps are adopted, updated and edited at each 1st of January. Types of adopted maps include: agricultural and forest areas, rural and urban areas with the destination built-up, trade/industrial areas, traffic-areas, areas with special usage rights, e. g. owner occupied flats or condominiums and rents if possible (Kertscher 2007). Standard ground value maps are published by committees of experts in different form mainly digital. They areavailableon CD orvia the Internet. In some cases there is charge for these maps. 88

95 Figure 3. Screenshot of standard ground value map availablevia the Internet. Source:committee of experts, map availablevia the Internet From 2004, federal and state governments agreed to develop model projects for implementing the national spatial data infrastructure. One of these model projects was the creation of a national information system for standard ground values. The project was successfully launched in NRW (North Rhine Westphalia) and was to be expanded to the remaining federal states. The project, called networked standard ground value information system (VBORIS), defined the integration of standard ground value information into a spatial data infrastructure. BORIS.NRW( BOdenRIchtwertinformationsSystem NRW ) includes inter alia the following elements (Kertscher 2009): - One common Internet portal to access all standard ground values in NRW. It allows an address search by municipality, street name and house number or a geographical search by a series of scales of different official maps; - For each selected address the user receives a map section containing details of the relevant standard ground values; - The explanatory characteristics of the standard ground value can be activated through additional functions; - The user has the option of selecting one of the following map backgrounds: German Base Map 1:5000, Digital Topographic Map 1:10000, Topographic Map 1:50000, Local map 1:10000/20000; - The standard ground values plus characteristics can be accessed free of charge; - It is also possible to purchase an official printout of the relevant section of the standard ground value map including explanations on letter-headed paper. In 2008 BORIS. NRW has changed with the introduction of the enhanced version BORISplus.NRW (Wanzke 2009). 89

96 Figure 4. Screenshot of BORISplus.NRW. Source: Wanzke, Lithuania In Lithuania land value maps are compiled in the process of mass appraisal for taxation purposes. Mass appraisal gained legal status when the Law on Real Property Tax was passed. Mass land valuation has been performed since From 2006 mass appraisal is performed annuallyon the basis of market as of 1 August of each year. The body, which performs mass appraisal for taxation purposes, including compiling value maps, is The State Enterprise Centre of Registers, that was established in It stores and updates the real property cadastre and register data, administers database of the real property cadastre and register, maintains GIS system in Lithuania, and assesses real property for public needs, including taxation. Data about the entire registered real property amounting to over 6,0 million objects is stored in the integrated database. (Bagdonavicius, Deveikis 2011). This database contains all real estates, located in Lithuania. All of them are subjects of mass appraisal for taxation purposes, so land value maps cover the whole country. In Lithuania in the process of mass appraisal including value maps CAMA and GIS are used. Their application expand additionally the possibilities of mass valuation method and increase the accuracy of values set during mass valuation (Bagdonavicius, Deveikis 2006). The principle scheme of building land parcel valuation models and compiling value maps is illustrated in Figure 5. 90

97 Figure 5. The principle scheme of building land parcel valuation models and compiling value maps. Source: Bagdonavicius, Deveikis, The prepared land value maps and reports on mass land appraisal of municipal territories are submitted to the Municipals Administrations and presented for public discussions. It is also possible to find the results of mass land appraisal on the web site (Bagdonavicius, Deveikis 2011). An average market value of land and buildings estimated in the process of mass valuation is publicly available free of charge. The results of mass valuation in Lithuania are used not only for calculation of real property taxes, but also for other public purposes. 4. Conclusions The paper presents the concepts of the map of average land transaction prices and the land value map, which are included in the Polish legal acts as well as rules for compilation of these maps. In Poland activities aiming at development of the map of average land transaction prices are in the preliminary phase of implementation and the land value maps are seldom created. At the same time, scientific and research works, aiming at elaboration of rules of construction of such maps, have been continued. Then in the paper land value maps, compiled in selected 3 European countries, are described. Two of them Sweden and Germany have extensive experience in this field. In the third country - Lithuania land value maps have been compiled since There are several similarities and differences between the maps of land value in above countries. In all of them CAMA and GIS are used in the preparation of the map as well as they are availablevia the Internet. Names of land value maps are different, depending on the country, in which they are prepared. They are named value zones maps, standard ground value maps as well as value maps. The bodies, which are responsible for compiling this kind of map, are state institutions in Sweden and Lithuania and the committees of experts on real estate values,covering a town or district, in Germany. In the case of Sweden and Lithuania, the entire country is covered with land value maps which are connected to the cadastre, while in Germany these maps cover most of the country's area 91