What is valuation and what types of value are there?

According to the definition in Ordinance no. 24/2011 on some measures in the field of property valuation, valuation is understood as the activity of estimating the value, materialized in a document called a valuation report, carried out in accordance with the standards specific to this activity and with professional ethics, by an authorized valuer. The valuation activity can be carried out by any person who has the quality of authorized valuer.

Valuation involves an estimate and not an exact calculation through a mathematical formula or precise quantification. It requires the professional judgment of the appraiser.
Depending on the purpose of the valuation report, the type of estimated value can be:
– market value – for example when the purpose of the valuation report is to secure a loan or sell an asset;
– fair value – when the purpose of the valuation report is financial reporting (recording the fair value in the company's accounting records);
– taxable value – when the purpose of the valuation report is to determine the value for building taxation;
– the investment value, when it is requested by an investor for a specific investment or for certain operating purposes.

These are just a few types of value, often requested by users of valuation reports.

When does a client use the services of an authorized appraiser?

Most of the time, when you decide to take out a loan to purchase a property or to develop a business, and the bank asks you to provide real estate collateral, it is very possible that you will need the services of an authorized appraiser to estimate the value of the collateral.
As a rule, the client can select the appraiser from the list of appraisers approved by the bank, and this can be a titular member (natural person) or a corporate member (legal person) of ANEVAR (National Association of Authorized Appraisers in Romania).

Companies must also turn to an authorized appraiser when they want to record the fair value of tangible assets in their financial statements, according to national accounting regulations or International Financial Reporting Standards (IFRS).

Another situation when an authorized appraiser is called upon is generated by one of the amendments to the Fiscal Code from 2015, which provides that the taxation of buildings, starting with 01.01.2016, is carried out depending on their destination and not depending on the type of owner - natural person or legal entity.

Under the new regulations, for buildings owned by legal entities, two types of evaluation reports can be carried out:
a. Valuation report for estimating the fair value of tangible assets, in order to record current values ​​in the accounting records (revaluation of tangible assets within one or more classes). The reference date of the valuation is the date communicated by the beneficiary of the valuation, preferably the date of the end of the financial year.
b. Evaluation report for estimating the taxable value of the buildings owned by the company. This report will be submitted by the beneficiary to the Local Taxes and Fees Department for the calculation of the building tax.

Considering that the methodology for estimating the two types of value is different, the fair value of a building is, most of the time, different from its taxable value, and the taxable value is not recorded in the company's accounting records.

These were, in short, a few examples of situations in which you can call on the services of FairValue Consulting, an evaluation company with 13 years of experience in the field.

Why can the price negotiated in a transaction be different from the result of the valuation report?

This difference is often possible because the price may or may not be equal to the value of a good.
The price is influenced by the conditions of the sale (the owner was forced to sell quickly, without an adequate marketing period, or the buyer is motivated to buy a certain asset). Probably each of us has faced such situations, in which the price was different from the value of the asset bought or sold.

In the property valuation standards that we, as authorized appraisers, are required to comply with, the difference between price and value is emphasized:
– price is the amount of money asked, offered, or paid for an asset. Due to the financial capabilities, motivations, or special interests of a particular buyer or seller, the price paid may differ from the value that might be attributed to the asset by other people.
– value is not a certain fact, but an opinion:
a. either on the most likely price to be paid for an asset in an exchange;
b. either on the economic benefits resulting from holding an asset