Valuation Standards around the World. Julio E. Torres Coto M. IVPB Member

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1 Valuation Standards around the World Julio E. Torres Coto M. IVPB Member

2 Standards have existed since the beginning of recorded history. Some were created by royal decree. For example, King Henry I of England standardized measurement in 1120 AD by instituting the ell, which was equivalent to the length of his arm. Some standards were an outgrowth of man s desire to harmonize his activities with important changes in the environment. Others were created in response to the needs of an increasingly complex society. Through History with Standards

3 One of the earliest examples of standardization is the creation of a calendar. Ancient civilizations relied upon the apparent motion of the sun, moon and stars through the sky to determine the appropriate time to plant and harvest crops, to celebrate holidays and to record important events.

4 The Egyptians were the first to develop the 365-day calendar and can be credited with logging 4236 BC as the first year in recorded history. They based the year s measurement on the rising of the Dog Star or Sirius every 365 days. This was an important event as it coincided with the annual inundation of the Nile, a yearly occurrence that enriched the soil used to plant the kingdom s crops.

5 By the way, it is also said that they were the first to apply valuations. By measuring the height to which water rose on the Nile they were able to determine the extent of flooding and thus the amount of land which would produce crop. This was the taxable land, which would be required to pay tithe to the temple and, therefore, the king. This is understood by some as a form of valuing the land and/or the crops.

6 With the advent of the Industrial Revolution in the 19th century, the increased demand to transport goods from place to place led to advanced modes of transportation. The invention of the Railroad was a fast, economical and effective means of sending products cross-country.

7 During the Civil War the U.S. government recognized the military and economic advantages to having a standardized track gauge. The government worked with the railroads to promote use of the most common railroad gauge in the U.S. at the time which measured 4 feet, 8 ½ inches (or maybe 4 feet, 9 inches), a track size that originated in England.

8 As early as 1789 the U. S. Constitution Charged Congress with fixing standards for weights and measurements. However this was not achieved in the whole of the U. S., until The measurement of time was also duly standardized as a requisite for the smooth running of the railways.

9 It is clear that the acceptance and recognition of standards has been and still is a slow process. This holds true not only for mechanical, industrial and safety concerns, but also in the service industries and the professions, including ours, valuation or appraisal.

10 Appraisal or Valuation Standards have been under constant evolution around the world at least since the thirty s. Two bodies that contributed significantly to the early efforts were the American Institute of Real Estate Appraisers, and the Royal Institution of Chartered Surveyors. However, mention must also be made of the Australian Property Institute, the New Zealand Institute of Valuers in the English speaking world, and the Instituto Brasileiro de Avaliações e Pericias de Engenharia and the German government through their Wertermittlungsverordnung (abbr. WertV, "regulation on the determination of value"), among many others.

11 Until the final years of the 1970 s, all valuation/appraisal standards were, at the most, of national significance. Recognized, applicable and enforceable only within the limits of a particular jurisdiction. The business world, however, had ceased to work only within such territorial limits.

12 Globalization was no longer just a by-word, for most enterprises it became not only a fact of life, but the way of doing business Accounting and accountants became global, because business required it. Financial reports had to be understood not only in the country where the assets were, but where the report was read. Accounting standards had to be worldwide.

13 And, of course, this meant that the valuation of those assets must also be clearly understood in different parts of the world. Businesses and the accounting profession said it was needed. The valuation/appraisal acted in accordance. Thus came into being The International Assets Valuation Standards Committee (TIAVSC). Its initial members were valuer s associations from North America, the U. K., Europe, Australia, New Zealand, South Africa and South East Asia.

14 They acted diligently and conscientiously, producing 13 Guidance Notes and the accompanying Background Papers, plus six more Background Papers, between 1982 and By the end of the decade most of the documents had undergone thorough revision and were newly published.

15 By 1994 it was recognized that the Committee s remit had expanded in answer to growing recognition of its work and demand for standards for a wider market. Therefore it became the International Valuation Standards Committee and focused not only on valuations for financial reporting, but also on those for lending purposes.

16 Its membership also grew with associations from Western and Eastern Europe, Latin America, the Pacific Basin and Africa joining. Demand for better and more comprehensive standards led to the Committee s 2000 project, through which a complete revision and reediting of the Standards, Applications and Guidance Notes was accomplished, in the 4 th edition of the IVS.

17 The Standards produced in 2002 complied with being: Comprehensive and robust Facilitate cross-broader transaction Contribute to viability of global markets Promote transparency in financial reporting

18 To date IVSC, now the International Valuation Standards Council, totally reorganized in , has published eight editions of the International Valuation Standards and is working on the 9 th Edition which most probably will have a completely different format, as does the Council.

19 Membership is now not limited to national professional associations. It welcomes users, governmental bodies, universities, and other interested organizations. Its structure comprises: The General Assembly, with three types of members. Board of Trustees. Standards Board. Professional Board.

20 Valuation is key to the good functioning of a market economy. Since the mid nineties, in response to globalization, there has been an unprecedented effort to develop internationally recognized standards and organizations, yet market participants and regulators have hitherto paid little or no attention to valuation. Today, in response to the many market problems brought to light by the credit crunch, the G20 leaders have called for standard setters to improve valuation principles and to achieve clarity and consistency worldwide. This is clearly a challenge that the International Valuation Standards Council intends to meet. Michel Prada Chair, Board of Trustees

21 At present IVS contains 3 Standards: IVS 1.- Market Value Basis of Valuation IVS 2.- Non Market Value Valuation Bases IVS 3.- Valuation Reporting.

22 Three Applications: IVA 1.- IVA 2.- IVA 3.-

23 Fifteen Guidance Notes

24 TEGoVA - The European Group of Valuation Associations, with a membership o 38 organizations representing 25 countries, has been responsible for the publication of valuation standards applicable in the European Union since the early 1980 s. The sixth edition of the Blue Book, was launched on 1 April 2009.

25 The text has been entirely revised from former editions in order to provide a set of standards that comply with the demand for valuations that are consistent across Europe, with a quality that can be relied upon as a common benchmark by investors, the financial industry and clients throughout Europe and beyond.

26 They provide a robust response to the European Commission that seeks harmonization of standards and valuation qualifications in all countries of the European Union.

27 It is expected that a valuation report be produced by a valuer whose honesty, integrity, qualification and relevant experience are appropriate to the instruction. The professional, qualified valuer must adhere to a code of conduct, engage in ethical behaviour, and show transparency in all aspects of the instruction from inception through completion.

28 The concept and application of best practice is embedded within the standards enabling a valuation to be prepared in accordance with them to be distinguished from a valuation that fails to embrace changes in the marketplace, client expectations and fiduciary duty.

29 The EVS has adopted definitions that are in common with IVS and that accord with EU Directives, specifically the definition of Market Value. The text not only develops the equivalent parts of EVS 2003, but also acknowledges developments in IVS 2005 and 2007, citing those texts when appropriate.

30 TEGoVA has also established the Recognized European Valuer Scheme to grant the status of Recognized European Valuer (REV TM ) to practicing valuers in each member country with a well defined indicator of qualification and experience, with the aim of assuring clients of their valuation proficiency.

31 The recognition is granted by the relevant TEGoVA Member Association, which in turn has attained consent to award the REV status. TEGoVA and the TMA issue a formal recognition to the individual practicing valuer and grant the consent to use the designatory letter REV TM. Such recognition is granted in the name of TEGoVA.

32 Individual recognition is made by the approved Member Association in the form of a certificate signed by the Chairman of TEGoVA and the Chairman/President of the member association. Recognition is granted for a period of five years after which time the valuer must seek renewal of his status.

33 Royal Institution of Chartered Surveyors (RICS)

34 It is said The Royal Institution of Chartered Surveyors (RICS), might be be the leading professional body for qualifications and standards in land, property and construction. At present it operates in 146 countries on all continents. For valuers and their clients, it produces de Red Book, RICS Valuation Standards.

35 The Red Book contains madatory rules and best practice guidance and related commentary for all RICS members undertaking asset valuations. These are the most widely used valuation standards in the world. Its latest edition incorporates IVS.

36 Normas Brasleiras de Avaliação de Imoveis

37 The Brazilian Propery Valuation Standards, published by the Brazilian Association of Technical Standard (ABNT), are specification standards, dealing mainly with how the valuation shall be done. They spell out in great and clear detail the precision expected in the valuation, and what method(s) area to be employed to develop it in a satisfactory manner.

38 IBAPE, the Brazilian Valuation Institute, is the professional body that oversees and enforces the standards. As a member of U.P.A.V., IBAPE recognizes the IVS and endorses its observance and application by Brazilian valuers. It also enforces compliance with IVS.

39 Uniform Standards of Professional Appraisal Valuation Practice (USPAPs)

40 There is very little about these that this audience does not know. What may be of interest is how USPAPs may or may not, interact with all the other standards in use in the valuation world. On February 2, 2006, The Appraisal Foundation and the International Valuation Standards Committee met, drafted and issued The Madison Agreement, of which some of you may be aware.

41 This Memorandum is based on the declaration that the parties share a common vision of a valuation profession with a single set of high quality understandable and enforceable global valuation (appraisal) standards. It commits both parties to seek the convergence of USPAPs and IVS as an important step on the path towards this vision

42 To this effect they pledged to use their best efforts to:

43 While acknowledging that compatibility cannot mean word-for-word identical standards but rather that the two sets of standards do not contain conflicts, work has progressed, though, admittedly, slowly, in the elimination of differences and a growing commitment to eliminate or reduce remaining differences though continued progress on joint projects and coordination of current and future work programmes which, it is expected, will improve comparability of valuation practices across national jurisdictions.

44 One of the main concerns is enforcement. While it is clear that USPAPs as a National rule, subject to the laws of a single National State, can be and are enforced within that State, international standards pose a more complex problem. How can they to be enforced in all jurisdictions in a reliable manner? Who is to be entrusted with this responsibility?

45 How do you monitor compliance with the Standards and a relevant Code of Conduct? What if the party (National Association) responsible for the enforcement in a given jurisdiction does not adequately fulfill its commitment?

46 These, and other questions which I am sure are in the minds of many of you must still be answered and, I for one believe they will be dealt with in the very near future. They must be, if we are truly to grow into the worldwide profession we strive to be.

47 Perhaps something along the lines of the European model might work on a worldwide scope. The solution, no doubt, is in the hands of the profession. On going cooperation between TAF and IVSC is an encouraging sign.

48 As is the growing interest in the work of IVSC of the professional associations in countries large and small all over the globe. And the continuous endorsement of IVS and the work of IVSC and its boards by the global community of users and regulators.

49 But of course, the final word, the ultimate decision, lies in the hands and the resolve of the profession. Only the worlds valuers (appraisers) can, and I believe will, make the decisions that will make ours, always, a respected profession.

50 Julio E. Torres Coto M.

REAL ESTATE VALUATION IN TRANSITION ECONOMIES. Dr. Nikolai TRIFONOV, FRICS, HonAAPOR, HonOKO, HonOSV. Belarusian Society of Valuers, President

REAL ESTATE VALUATION IN TRANSITION ECONOMIES Dr. Nikolai TRIFONOV, FRICS, HonAAPOR, HonOKO, HonOSV European Real Estate Society, Director at Large Responsible for Central and Eastern Europe Relations