Building appraisal
index
What is a building appraisal for?
- Guarantees for mortgage loans or creditsTo obtain a mortgage or any other type of loan, an appraisal is key. It determines how much the financial institution is willing to lend you based on the property's value.
- Investments and financial analysisFor investors, an appraisal is essential to understanding a property's true value. This allows them to analyze its profitability based on potential rental income, appreciation in value, or a future sale.
- InsuranceAn appraisal is also useful for securing an appropriate insurance policy. This way, you ensure that the building's value is adequately covered against damage, natural disasters, or other incidents.
- Taxes: Tax authorities use the appraisal to calculate property-related taxes, such as property tax or income tax if a profit is generated from the sale.
- Distribution of propertyIn situations of inheritance, division of assets or dissolution of companies, an appraisal allows for a fair and equitable division of assets.
- TradingIf you're considering buying, selling, or renting a property, an appraisal helps you determine its value in the current market, making your decision-making easier.
- Legal processes: Appraisals are also useful in legal proceedings, such as property value disputes, eminent domain cases, or real estate litigation.
- Property improvementsWhen remodeling or improving, knowing the current value of the property will help you evaluate whether the investment will significantly increase the property's value.
- Tax and accounting auditsIn tax or financial audits, appraisals are essential to ensure that the property's value is accurately reflected in the financial statements and to ensure that taxes are correctly calculated. This also helps prevent property-related tax evasion.
What type of appraisal is performed on a building?
He market approach This is the most common method for valuing a building. This approach involves comparing the property with similar properties that have recently sold on the market. Factors such as the property's location, size, features, and condition are taken into account.
The appraiser adjusts the property's value based on differences found with comparable properties, such as age or quality of finishes. This method is the most widely used due to its simplicity and the relevance of the available data, especially for residential and commercial properties. Although other methods exist, such as cost approach or the income approach, market comparison remains the preferred approach in most cases.
What aspects are taken into account in a Building Appraisal?
When a building is appraised, several factors affecting its value are considered. These can be classified into several key categories:
1. Physical Aspects
- Age of the propertyThe age of the building influences its value, as older properties may require more maintenance.
- Construction size: The total built area directly affects the value, as a larger building generally has a higher value.
- Total areaThe size of the land on which the building is built is also relevant, especially if the land has the potential for expansion or modification.
- Conservation statusA well-maintained property will have a higher value than one that shows signs of deterioration.
- Quality of finishes: Construction materials and finishes (floors, ceilings, windows, etc.) impact valuation, as higher-quality finishes increase the property's value.
- Basic facilities: The good condition of the electrical, hydraulic and gas installations is essential to ensure the functionality and habitability of the building.
2. Location and Environment
The location of a property is one of the most determining factors in its value. Considerations include:
- Accessibility: Proximity to public transport and main roads enhances its value.
- Available services: The availability of services such as drinking water, electricity, and street lighting is crucial for habitability.
- Proximity to shops and centers: Proximity to shops, restaurants, schools, parks, and other amenities increases demand and, therefore, property values.
- SecurityLiving in a safe area is a determining factor in the valuation of a property.
3. Economic Factors
Economic factors play a key role in determining a building's value. Key economic factors include:
- Land value: The cost of the land on which the building is located significantly influences the total valuation of the property.
- Market supply and demandLocal real estate market conditions, such as the supply of similar properties and demand in the area, affect value.
- Cost of repair or upgradeIf the property requires repairs or renovations, this may decrease its value, as the cost of the improvements must be considered.
- Income generated (if applicable)In the case of commercial or investment properties, the income the building can generate (for example, rent) is also an important factor in determining its value.
4. Legal and Regulatory Factors
Compliance with local regulations and legal factors is also essential. This includes ensuring that the building complies with building regulations, land use regulations, and any other legislation that may affect its value.
Who is authorized to carry out an appraisal?
An appraisal must be carried out exclusively by a Appraiser certificate. Depending on the type of appraisal, its purpose, and the country in which it is performed, the appraiser may need to be registered with other relevant institutions.
- Credit Institutions: Banks and other financial institutions often require appraisals to grant mortgages or other loans.
- Public Brokers, Auctioneers or Notaries (Notaries Public)
- Valuation Companies and Professional Appraisers: Companies and professionals specialized in conducting appraisals, provided they have the necessary accreditations and registrations.
- Membership in Professional Associations: Appraisers, valuers, and appraisers are often affiliated with associations or organizations that represent appraisal professionals. These organizations typically establish standards and regulations that their members must adhere to and may offer credentials that validate their ability to perform appraisals.
- Compliance with Standards and Regulations: Appraisals are often required to follow international or local standards and regulations, such as International Valuation Standards (IVS), International Financial Reporting Standards (IFRS), or similar principles. A certified professional must demonstrate that they can apply these standards in their work.
- Authorization by Competent Authorities: Depending on local legislation, the professional may be required to be registered or to have obtained authorization from a competent entity in charge of regulating appraisals.
How long is a building appraisal valid for?
Typically, a real estate appraisal is valid for six monthsThis means that, after this time, the estimated value of the property could have changed due to factors such as market fluctuations or changes in the building's condition. Therefore, it is essential to consider the specific needs at the time and choose the most appropriate appraisal within its validity period.
Types of buildings that can be valued
1. Residential buildings
Single-family homes
Apartments or flats
Multi-family housing
2. Commercial buildings
Offices
Commercial premises
Shopping centers
3. Industrial buildings
Factories and manufacturing plants
Warehouses and industrial buildings
5. Institutional and government buildings
Schools, universities and educational centers
Hospitals and health centers
Government offices and administrative buildings
6. Tourist and recreational buildings
Hotels and motels
Resorts and tourist complexes
7. Historic or heritage buildings
Historical monuments, museums and sites of cultural interest
8. Buildings under development
Construction projects in progress
9. Agricultural buildings
Greenhouses, agricultural sheds and farms
Regulations and Standards by Country in a Building Appraisal
1. Mexico
- In Mexico, property appraisals are regulated mainly by the General Law on National Assets and the Appraisal Standards established by the Institute for the Administration and Appraisal of National Assets (INDAABIN)Local regulations in each state are also taken into account.
- The appraisal must be carried out by a certified appraiser by the Mexican Valuation Society (SMV), and must include a detailed description of the property, the cadastral value, the market value, and, if necessary, the conditions of the real estate market.
- The type of construction, age, state of preservation, location, capital gains, and market comparables are considered.
2. USA
- In the United States, real estate appraisals are primarily regulated by the Uniform Standards of Professional Appraisal Practice (USPAP)), which are guidelines issued by the Appraisal FoundationIt is important to mention that these must be updated every two years, it is mandatory for licensed appraisers.
- The Federal Housing Administration (FHA) has regulations for certain types of financing.
- Appraisals must be performed by a Certified Real EstateProperty values are based on market comparables (recent sales), the property's physical condition, its location, and other local market factors.
- Factors to consider include a comparison of recent sales, replacement cost, and the property's profitability. Zoning and local land-use regulations are also taken into account.
3. Argentina
- In Argentina, real estate appraisals are regulated mainly by the Civil and Commercial Code of the Nation, as well as provincial professional associations such as the Professional Council of Surveying, Architecture and Engineering or the College of Public Auctioneers.
- Appraisals must be carried out by qualified and registered appraisers, such as those that form part of the Argentine Federation of Real Estate Appraisal Entities (FAEVY).
- The criteria to be followed include a detailed description of the property, its market value, cadastral value, and its relationship to the economic and local context. In addition, consideration is given to the type of construction, age, state of repair, location, and comparable market values.
4. Colombia
In Colombia, the appraisal of real estate is regulated by the Law 1673 of 2013, which supervises the appraiser's activity. As well as el Open Registry of Appraisers (RAA).
- Appraisals must conform to the International Valuation Standards (IVS) when the assignment requires it.
To carry out an appraisal, it is necessary that the expert appraiser be certified by the Superintendency of Notaries and Registry.
The appraisal must detail the property's description, assessed value, market value, and tax value. It also takes into account the property's location, physical condition, age, local real estate market conditions, and comparable property values.
5. Chile
In Chile, appraisals are regulated under the Law 18.795 on the real estate system and the Law 19.537 on horizontal property. As well as the Chilean Standard NCh 430 and the Regulations of the Ministry of Housing and Urban Development (MINVU).
- Urban and cadastral valuation falls on municipalities and the Internal Revenue Service (SII).
Appraisals must be carried out by licensed appraisers, who must follow the guidelines of the College of Appraisers of Chile.
A property appraisal must consider aspects such as its construction type, age, state of repair, location, market value, and capital gains. Comparable properties and local market conditions are also analyzed.
6. Peru
In Peru, the appraisal of real estate is regulated by the Law No. 28,923 on cadastre and the Law No. 28,243 on real estate appraisal. As well as the National Appraisal Regulation (RNT) under the Ministry of Housing, Construction and Sanitation.
The appraisal must be carried out by a accredited and registered appraiser before the National Superintendence of State Assets (SBN). They can also carry out appraisals engineers, architects or certified appraisal professionals.
The appraisal is based on criteria such as location, type of construction, age, state of repair, market comparables, and the property's cadastral value. The evolution of the real estate market and demand in the area are also considered.
7. Ecuador
In Ecuador, property appraisals are regulated by the Urban Cadastre and Appraisal Law. As well as by the Municipal Regime Law and various technical standards from entities such as the Military Geographic Institute (IGM) and the Technical Secretariat of Habitat and Housing.
- Some appraisals must be adjusted to the International Valuation Standards (IVS) for certain processes such as expropriations, planning or corporate appraisals.
A property appraisal should include a detailed description of the property, its market value, its assessed value, and local market conditions. The building's age, type of construction, state of repair, and comparable properties in the area are all taken into account.
8. Costa Rica
In Costa Rica, appraisals are governed by the Law No. 8,736 of Cadastre and the Regulations of the Cadastre Law. As well as by the National Appraisal Regulations (RNA), which is the main technical framework for public entities. The National Geographic Institute (IGN) and the Treasury intervene for fiscal or technical purposes.
Experts must be registered members of the College of Engineers and Architects of Costa RicaThere are also other qualified professionals such as surveyors or civil engineers, depending on the type of property and the specific regulations.
The appraisal process must detail the property's characteristics, including market, cadastral, and tax values. Also considered are the property's age, type of construction, state of repair, location, and comparable properties within the local market.
9. Uruguay
In Uruguay, appraisals are regulated by the Law No. 18,308 of cadastre and the General Tax Directorate (DGI), which establishes the tax parameters for the valuation of real estate.
Appraisals must be carried out by qualified appraisers, and must include a detailed description of the property, its market value and the cadastral value.
Factors to consider include age, type of construction, state of repair, location, and comparable property values in the area.
10. Paraguay
In Paraguay, appraisals are regulated by the Law No. 1,092/97 on Cadastre and the General Directorate of Public Registries.
Appraisals must be carried out by certified professional appraisers, who must include in the report a description of the property, the market value, the cadastral value and the fiscal value.
The location, state of preservation, type of construction, age, capital gains, and values of similar properties in the same area are considered.
