BEST PRACTICE PINZ Valuation and Property Standards Board
Introduction Standards as a very useful tool for supporting best practice A best practice paradigm Typically, for example, Guidance Notes say Guidance notes are intended to embody good practice and therefore may (although this should not be assumed) provide some professional support if properly applied. While they are not mandatory, it is likely that they will serve as a comparative measure of the level of performance of a member. They are an integral part of The Valuation and Property Standards Manual Standards are mandatory, and therefore need to be conformed with, but they too can be seen as embodying best practice. The valuation and property standards are Your guide to being a member of an industry leading professional, property institute
Agenda Overview of the new standards Conceptual view of standards Case studies Where are we going wrong? What is the Standards Board working on? Proposed IVSC Standards Summary / close 10 mins 5 mins 40 mins 10 mins 5 mins 5 mins 5 mins Handouts Standards flow chart Ton Remmerswaal s paper
The new standards Effective date October 2009 Contain specific NZ content reflecting NZ only requirements Incorporate previous Standards, Applications and Guidance Notes Many of these have been extensively revised together with a number of new Guidance Notes both International and NZ / Australia specific
Structure of Standards Commence with Fundamentals Generally Accepted Valuation Principles (GAVP) Code of Conduct International & Local Property Types Real Property, Personal, Business and Financial Interests International Standards International Applications International Guidance Notes PINZ / API Standards PINZ / API Guidance Notes PINZ / API Business Focus
A conceptual view
Case Study 1 You are a Registered Valuer required to value a residential dwelling under construction for finance purposes. An unregistered valuer in your team is to work with you on the valuation. You will also be required to provide progress payment valuations during construction. Q1. What Standards, Applications & Guidance Notes apply? Q2. What are the potential risks when undertaking these types of valuations
Case Study 1 - Answer IVS 1 Market Value Basis of Valuation IVS 3 Valuation Reporting IVA 2 Valuation for Secured Lending Purposes IVGN 1 Real Property Valuation ANZVGN 1 Valuation Procedures real property ANZVGN 2 Valuation for Mortgage and Loan Security Purposes NZVGN 3 Valuation of Houses under Construction and Houses to be Built or Previously Unoccupied New Houses ANZRPGN 1 Disclaimer and Qualification Statement ANZRPGN 4 Methods of measurement NZRPGN 2 Countersigning of Valuation Reports Prepared by Unregistered Valuers
Case Study 2 You have been asked to value a commercial office building, recently developed on an ex service station site. This is a multi tenant property and incentives are common in the market. The valuation is required for Financial Reporting Purposes. What standards, applications and guidance notes would you need to refer to and/or consider?
Case Study 2 - Answer IVS 1 Market Value Basis of Valuation IVS 3 Valuation Reporting IVA 1 Valuation for Financial Reporting IVGN 1 Real Property Valuation IVGN 7 Consideration of Hazardous and Toxic Substances in Valuation IVGN 9 DCF Analysis for Market Valuations and Investment Analysis NZVGN 1 Valuations for use in New Zealand Financial Reports ANZVGN 1 Valuation Procedures real property ANZRPGN 1 Disclaimer and Qualification Statement ANZRPGN 3 Leasing Incentives ANZRPGN 4 Methods of measurement ANZRPGN 9 Assessing rental value NZRPGN 1 Valuation of Contaminated Land
Case Study 3 Your client requires a valuation of a rural property which is to be included in an investment portfolio that will be publicly offered. What standards, applications and guidance notes would you need to refer to and/or consider?
Case Study 3 - answer IVS 1 Market Value Basis of Valuation IVS 3 Valuation Reporting IVGN 1 Real Property Valuation IVGN 10 Valuation of Agricultural Properties ANZVGN 1 Valuation Procedures real property ANZVGN 8 Valuations for use in Offer Documents ANZVGN 10 Valuation of Agricultural Properties ANZRPGN 1 Disclaimer and Qualification Statement ANZRPGN 1 Methods of Measurement
Case Study 4 You are instructed to value the freehold going concern of an accommodation hotel (in one line) with restaurant, bar and conference facilities, to assist the owner with establishing appropriate market price parameters. What Standards, Applications & Guidance Notes apply?
Case Study 4 - answer IVS 1 Market Value Basis of Valuation IVS 3 Valuation Reporting IVGN 1 Real Property Valuation IVGN 4 Valuation of intangible assets (of interest) IVGN 6 Business valuations IVGN 9 DCF for Market Valuations and Investment Analysis IVGN 12 Valuation of Trade Related Property ANZVGN 6 Valuation of Accommodation Hotels ANZVGN 1 Valuation Procedures real property ANZRPGN 1 Disclaimer and Qualification Statement IVGN 3 [possibly] Valuation of Plant and Equipment
How does the membership shape up? Ton Remmerswaal (NZIV Councillor Membership Advancements) reviews reports put forward in support of progression to ANZIV So these are reports from experienced valuers How do we shape up on compliance with standards?
How does the membership shape up? Some reports still refer to NZIV Practice Standards 1, 2 and 3 (superseded in 2004). Should refer to IVSs and IVAs which for most common reports require reference to: IVS3 (all reports) and IVA2 (all mortgage valuation reports).
How does the membership shape up? Common omissions in applicants reports in relation to IVS 3 and IVA 2 (See handout for detail): Identify the client, date of inspection versus date of valuation; State intended use of the valuation; Specify basis of valuation, and define market or rental value; Specify the basis of valuation (i.e. methodology; e.g. comparable sales or rentals, income capitalisation approach), as required by IVS 3 (5.1.3) Contain a mortgage recommendation; NZ 6.16 (contained within IVA 2) requires that the valuer make a mortgage recommendation. i.e. the maximum amount or percentage prudent to lend if the bank requests you not to provide this you must say so in the report or undertake a risk assessment
How does the membership shape up? Common omissions in relation to Guidance Notes, which embody best practice include: Details of instructing party and/or client, and who can rely on the report (ANZVGN 1) Disclosures in relation to progress reports (NZVGN 4) Where two or more valuers are involved in a valuation, specifying the involvement of each (ANZVGN 1) Disclosures in relation to compulsory acquisitions, covering instructions (in writing), requirement in interview the owner, zoning detail, effective date etc (ANZVGN 5) Disclosures in relation to forced sale valuations, including defining current forced sale value and marketing conditions, and appropriate statements (ANZVGN 3)
How does the membership shape up? FYI, the most common Guidance Notes are: ANZVGN 1 (Valuation procedures real property) as a guide to report content IVGN 1 (Real Property Valuation) as a guide to report format NZVGN 4 (Valuation of houses under construction) for valuations as if complete (Under review, to incorporate commercial property) ANZVGN 9 (Assessing Rental Value) ANZVGN 3 (Valuations for Mortgage and Loan Security Purposes Forced Sale) ANZVGN (5) (Valuations for Compulsory Acquisitions)
What is your Valuation Standards Board working on? Insurance Valuation Guidance Note NZVGN 3 - Valuation of Houses under Construction and Houses to be Built or Previously Unoccupied New Houses Review of all NZ Guidance Notes Consideration of standards relating to emerging issues associated with valuing water rights and carbon credits Consideration of IVSC Exposure Draft Proposed New International Valuation Standards released June 2010 The proposed IVSC Standards are a complete change from the current appearance, layout and structure Designed to give users of valuations sufficient understanding of recognised norms. They are not a training manual.
Proposed IVSC Standards Transparency of Process Defining the Hypothesis Promoting common terminology Significantly reduced in content Have eliminated repetition Eliminated methodology Eliminated Code of Ethics Reduced Glossary Reduced perscription
100 Series General Standards IVS 101 General Concepts & Principles IVS 102 Valuation Approaches IVS 103 Bases of Valuation IVS 104 Scope of Work IVS 105 Valuation Reporting
200 Series Application Standards Fair Value under IFRS Valuations for Depreciation Valuations for Lease Accounting Valuations for Impairment Testing Valuations for Property, Plant & Equipment in the Public Sector Valuations of Property Interests for Secured Lending
300 Series Asset Standards Valuations of Businesses Valuations of Intangible Assets Valuations of Plant & Equipment Valuations of Property Interests Valuations of Historic Property Valuations of Investment Property under Construction Valuations of Trade Related Property Valuations of Financial Instruments
Summary Standards are there for our benefit, to maintain minimum standards of our profession, and offer best practice guidance. Use them as a risk management tool, to guide you and meet minimum expectations / requirements. Think of standards not so much as a book of rules, but as supporting a best practice paradigm