Real Estate Valuation

Real estate valuation

Introduction

Valuation is a scientific process that through techniques and methodology seeks to determine the value of a certain real estate analyzing the physical, economic, social and political factors, which will be established in the document called Avalúo Report, which is preparedBy an expert certified professional value.

The Institute of Administration and appraisals of National Assets (INDAABIN) defines valuation as “the technical and methodological procedure that, through physical, economic, social, legal and market research, allows estimating the amount, expressed in monetary terms, of thequantitative and qualitative variables that affect the value of any good ”.Worldwide, the International Valuation Standards Council (IVSC) is the non -profit organization that establishes international standards of international valuation practice, as well as valuation standards for valuation, at the service of public interest.

The background of the valuation of real estate in Mexico date. (Sánchez Juárez, 1986) The main objective was to make a detailed description of the real estate to determine a property tax in question, with respect to the constitutional obligation to contribute to public expenses.

Developing

Approaches and techniques for real estate valuation

As already mentioned above, real estate valuation is a process regulated internationalpublic interest. Its main objectives are:

•  Develop international high quality valuation standards that ensure consistency, transparency and confidence in valuations worldwide.

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•  Promote the adoption of international valuation standards, together with the professionalism in the assessment provided by organizations of valuation professionals worldwide.

The IVSC facilitates collaboration and cooperation among its member organizations, which are providers of valuation services, financial services, regulators, international organizations and academic institutions. The IVSC is made up of more than 130 members of members around the world and has the support of numerous sponsors who are leaders in the valuation profession.

At the national level, the Ministry of Economy, is the institution that regulates the valuation through the General Directorate of Standards with the declaration of validity of the Mexican Standard, which establishes the general requirements that must be met, with the main objective of providingtrust that the valuation service will be carried out with technical competence, impartiality, confidentiality and dedication.

With respect to the techniques for the realization of appraisals, the Institute of Administration and Appraisals of National Assets (INDAABIN), establishes the use of cost, income and market approaches;On the other hand, the Federal Mortgage Company (SHF), determines comparative or market, physical or cost, residual and capitalization approaches.

Comparative or market approach

It consists of the collection of information from the market of goods comparable to the good to be value.

Physical or cost approach

Estimate the cost of reproduction or replacement of a good equal or similar to the good analyzed at the date of the appraisal and the result of this estimate is called a new replacement value (VRN). If the good is not new, its value will be affected by the applicable depreciation and obsolescence factors and thus the physical value or net replacement value (VNR) is obtained.

 That is, the value of a real estate or furniture is comparable to the cost of replacement or reproduction of one with utility or functionality similar to the one that is valued, considering all those conditions that can influence the value of each of the goods. The main objective of knowing the value of atypical goods, of which there are no comparable operations or offers in the market.

Income capitalization approach

This approach considers the present value of future benefits derived from the good to be valued and is measured through income capitalization. It applies to the goods susceptible to economic exploitation, whose expectations of future income, support the value of the good in question.

Residual approach

The residual value is what results from the analysis of the benefits and costs for an investor that acquires a land with constructions, to develop in it a real estate project;The residual approach is applied as long as there is no reliable market evidence and there is technical, legal, social, economic and financial viability of the real estate project, considering the greatest and best use of the property.

Depending on the nature and importance of the property to be valued, as well as on the complexity of the case, the residual method may be carried out by means of two analysis:

1. Static residual.
2. Dynamic residual.

Therefore, we can establish that the current process of real estate valuation in Mexico, formed by the governmental instances regulatory of valuation services is based on traditional approaches such as comparison or market, physicist or costs, the income capitalizationand the residual. Which in turn emphasize the endogenous, tangible and building elements of the goods.

conclusion

According to the previous ideas, we can establish that real estate valuation is a methodological technical process whose objective is to determine the value of the real estate by measuring physical, economic, social, legal and market components, typical of the good and the enclave of the same.

Therefore, we can establish that the current process of real estate valuation in Mexico, formed by the governmental instances regulatory of valuation services is based on traditional approaches such as comparison or market, physicist or costs, the income capitalizationand the residual. Which in turn emphasize the endogenous, tangible and building elements of the goods.