First of all, it is worth saying that the valuation of real estate (and other types of property) can be divided into:
• individual assessment • mass assessment
Mass assessment
is carried out for large sets of objects and usually takes into account the individual characteristics of each of the objects being assessed to a relatively small extent. An example of mass valuation is cadastral valuation, when all real estate (all land plots or all buildings or all apartments, etc.) of the region is simultaneously assessed.
Individual assessment
is carried out for each object separately or for relatively small sets of objects and takes into account to a greater extent the characteristics inherent in each object being assessed. This is especially important when valuing real estate, since unlike, say, mass-produced equipment, each piece of real estate has unique characteristics to one degree or another - at least location. Even two completely identical apartments in a standard building with identical renovations from the developer, located in the same entrance on the same floor, will have a slightly different location in space, which already creates uniqueness for each of them. In this case, this uniqueness most likely will not affect their cost, and yet they cannot be called absolutely identical. The same can be said about land plots - each of them is unique to one degree or another.
Let's consider how and why an individual assessment of the market value is carried out (there are different types of values, but the most common is the assessment of the market value) of land plots.
Why a land valuation may be needed
From the point of view of the question “Why?”
the valuation of land plots does not differ from the valuation of other real estate. The most common cases when such an assessment is carried out are: - concluding purchase and sale transactions, including transactions in which government agencies are involved as a seller or buyer; — conclusion of a lease agreement - in this case, both regular rent (per month, quarter or year) and a one-time payment for the right to conclude a lease agreement can be assessed; - challenging the cadastral value - to reduce the tax base (formally, we can say that it can also be increased - but such a service is not in demand on the market); — various legal disputes; — adjustment of book value; — determination of the price of withdrawal, payment for easement or temporary occupation of a land plot and other cases.
Results of the procedure
After assessing the cadastral value of land in settlements, all results obtained must be included in the report, for which 10 working days are allotted. A correctly prepared report is sent to the regional executive authorities, where within 30 days a decision must be made on the correctness of the assessment, and the calculated price is entered into the database. The calculated value comes into force only from the first day of the next year and is used to calculate land tax and other property payments.
The obtained assessment results are used for the following purposes:
- Automation of accounting and taxation.
- Approval and calculation of the actual tax base of individual plots.
- Possibility of correct calculation of compensation payments during land acquisition.
- Introducing various kinds of amendments to territorial zoning.
- Formation of the mortgage and land collateral market.
- Identification of optimal sites for the construction of infrastructure and residential buildings.
If there are any inaccuracies in the calculation or the owner disagrees with the assessment received, it is possible to contact an independent appraiser to perform a repeat procedure. also write a statement objecting to the received calculations, which is sent to the executive authorities that keep records of land plots.
According to current legislation, all used territories are subject to cadastral value assessment. Recalculation is carried out once every 5 years or more often, which ensures that the tax base used is fully up-to-date, and plot owners have the opportunity to correctly calculate the price when carrying out transactions for the sale of land plots.
How land plots are assessed
To conduct an assessment, it is necessary to conclude an agreement with an appraisal company, including an assessment assignment - a document that will record the main characteristics of the land plot being assessed, the purpose of the assessment, assumptions or special conditions that the appraiser must take into account, and other factors required by law.
To conclude an agreement and formulate an assessment assignment, the assessment customer must provide documents on the object, a specific list of which is advisable to determine when contacting the appraisal company, taking into account the purposes for which the assessment is being carried out and what the assessed object is. The minimum set will be a current extract from the Unified State Register for the plot or another title or title document and a cadastral passport, but you should be prepared for the fact that other documents may be required. After studying the documents, the appraiser will inspect the property and begin the assessment.
There are three approaches to assessment:
• Comparative • Profitable • Costly
Within each of them there are different methods. And the approaches and methods used within each of them are chosen by the appraiser, justifying his choice and describing the calculations carried out in the appraisal report, which is a document recording the result of determining the market value of the land plot.
The procedure for challenging a cadastral valuation
The cadastral valuation results can be changed if a technical error is established during the appraiser’s work. In this case, the appraiser re-performs the assessment work and presents the result to the customer in order to amend the act approving the land assessment results.
The possibility of judicially challenging the results of a cadastral valuation of land is possible in cases where the owner of the property does not agree with the calculation of the tax base made on the basis of the land valuation.
The Federal Law “On Valuation Activities in the Russian Federation” establishes that in the event of legal disputes, the cadastral value of land can be determined by the court. Until 2014, arbitration courts of the Russian Federation dealt with such disputes. Currently, this category of disputes falls within the competence of courts of general jurisdiction.
The court accepts as evidence in the case reports on the market value of the land plot, which are compiled by appraisers. If a court decision recognizes the cadastral value as equal to the market value, the Rosreestr authorities are obliged to make appropriate changes to the State Real Estate Cadastre. Also, this decision will be the basis for a downward change in the tax base when calculating land tax.
The total number of court decisions rendered in favor of the applicants is constantly growing. The main reason for this growth is the development of methods and means of independent assessment of the market value of land plots. The qualifications of appraisers in this service market are also constantly improving, which allows them to prepare reasoned reports with a good evidence base.
Comparative approach to assessment
The comparative approach to valuation is based on comparing the object being valued with similar objects for which their value is known - either the price of the transaction or the offer price.
Such objects of comparison are called analogues. As mentioned above, there are no 100% identical real estate properties, so analogues should always be similar to the property being valued in some key characteristics, but will always differ from it to one degree or another. To take into account the impact of these differences, the appraiser introduces so-called adjustments to the prices of analogues, and after making all the necessary adjustments based on the adjusted prices of analogues, he comes to a conclusion about the value of the property being appraised. The key criterion for choosing an analogue is that it belongs to the same market segment as the land plot being assessed (you should not consider a plot of arable land in the suburbs as an analogue for a land plot for commercial development in the center of a million-plus city). In assessment practice, this is called the most effective use - for analogues it should correspond to that for the object of assessment. Next in importance is location; then the provision of engineering communications, area and other factors, the set and relative importance of which depend on the market segment to which a particular object belongs. The appraiser must describe the criteria for selecting analogues in the report, and show from which objects and why exactly the analogues involved in the calculation were selected.
For land plots free from development, the unit of comparison for which adjustments are made is most often the cost of a unit of area (per 1 sq. m, per 1 hectare). Sometimes other units of comparison are chosen - for plots for commercial development or multi-apartment residential buildings, this may be the cost of 1 sq. m. m of selling area of a building that can be erected on the site. In the case of valuation of a built-up site, comparison can be made based on the price per unit area of buildings, or, as it is commonly called, improvements. In this case, the appraiser first receives the value of the entire object - the land plot along with the improvements located on it, and from it already allocates the value of the site either by subtracting the cost of buildings, which is then calculated separately, or through information about the average market share of the cost of the land plot in the cost of a single property in this market segment.
At the same time, a building located on a plot will not always be a factor that increases the cost of a single object compared to the cost of an empty plot of land (although it will still be called an improvement). An abandoned or unfinished building that cannot be used and will have to be demolished will not increase, but on the contrary, reduce the value of the site by at least the cost of demolition. In this case, it is advisable to choose the cost per unit area of the plot as a unit of comparison.
The comparative approach in theory is the most market-based. In practice, it also has weaknesses, expressed in the limited number of analogues, incomplete information on them, the difficulty of justifying the values of the applied adjustments, the subjectivity of pricing the offers of analogues and the opacity of information about transactions.
OBJECTIVES OF LAND VALUATION AND MAIN DIRECTIONS FOR USING INDICATORS OF MARKET VALUE OF LAND
The purpose of determining the market value of land is mainly to complete a transaction with a land plot, a property complex or proprietary rights to a property. However, the assessment of the market value of land can also be carried out for other purposes, for example, in order to establish the rate of land tax, compensation for damage and losses in the event of requisition or seizure of a land plot, making decisions in the field of planning the use of the territory, etc.
The most typical cases when the need to assess the market value of land plots may arise and arise are the sale of land plots, the implementation of investment projects, obtaining a loan secured by a land plot or rights to it, determining rent, establishing land tax, property insurance, etc. d.
One of the most important areas for using market valuation of land is state regulation of the real estate market. On the one hand, the state, representing the interests of the entire society, is the owner or lessor of real estate assigned to it, including land plots. On the other hand, the state, through a system of regulatory legal acts, participates in transactions or ensures their completion.
In developed countries, despite all the spontaneity of the market, the policies of administrative bodies influencing its development in the interests of solving socio-economic problems through government regulation are of great importance.
State regulation of the real estate market should be based on a policy based on the market valuation of real estate, aimed at increasing their value (market value) and conducive to domestic and foreign investment in real estate and, accordingly, increasing economic activity.
One of the main tasks of the state in a market economy is the formation and execution of budgets in the interests of meeting the socio-economic needs of the citizens of the state. Real estate, including land, is one of the most reliable sources of budget revenue thanks to tax and rental payments. For example, in Canada, in the province of British Columbia, the share of tax payments related to property is about 70%. In the Russian budget it is less than 5%. Meanwhile, it is obvious that real estate, as a special product, due to its non-transportability and, therefore, inability to hide, is the most reliable source of income in the form of rent and taxes. In Russia, the basis for tax and rental payments for land should also be the market value of real estate, including land plots. In an indirect form, the transition to the establishment of land payments has already been fixed in the Land Code of the Russian Federation. So, in Art. 65 it is written that for tax purposes and other cases provided for by the Land Code of the Russian Federation and federal laws, the cadastral value of land is established. And Article 66 states that if the market value of a land plot is established, the cadastral value is formed as a percentage of it. However, the implementation of this provision and the transition to establishing land tax and rent based on market value will require significant efforts related primarily to the creation of a mechanism for determining the market value of land plots and giving it legal status, which in turn will require the creation and development of institutional structures in the field of market valuation of real estate.
A system of property management, including the constant assessment and revaluation of the market value of land and its improvements, is common in all developed countries. The main objectives of such a system are:
— fiscal — creating a basis for determining the amount of payments for land and its improvement (taxes, rent, purchase price, etc.) based on monitoring their market value;
— economic — the creation of economic levers and methods for regulating the development of real estate in cities, the development of economic activity in the agricultural sector of the economy, the creation of conditions for the withdrawal of natural resource rent generated in the forest and mining sectors of the economy into the state budget;
— creating a favorable investment climate in the country as a whole.
Currently, the assessment of real estate objects taking into account the real market value of land is becoming one of the most important tasks of both state authorities and local governments. The main tasks of managing state and municipal property, for the effective solution of which it is necessary to use the market value of real estate, include the following:
— disposal of state and municipal property; — management of state and municipal property; — control over the intended use and safety of state and municipal property; — ensuring, within the limits of its competence, the protection of property rights when conducting cases in the courts with the exercise of the powers of the plaintiff, defendant or third party; — achieving maximum profitability of real estate properties. The implementation of the listed tasks is associated with the creation of full-fledged regulatory and information support for this activity at all levels of management. However, already now indicators of the market value of land plots can be used by state bodies and local governments: - in the case of land plots being involved in a transaction, including for the purpose of their privatization, transfer to trust management or lease; - when establishing a cadastral valuation of land; — when determining the standard price of land; — when withdrawing (buying out) land plots for state or municipal needs; - during requisition of lands; — when determining the initial price of a land plot at auction; — when summing up the results of competitions for the sale of rights to land plots; — when pledging land plots that are in state and municipal ownership; — when the purpose of land changes; — when determining sale prices for land plots without a bidding procedure; — when determining losses (to the state) caused by unlawful actions of land users; — to determine the amount of insurance compensation when insuring land plots that are in federal ownership, property of constituent entities of the Russian Federation and municipal property;
— when determining the economic efficiency of urban planning decisions; — when assessing the consequences of establishing restrictions and encumbrances on the use of land; — when establishing town planning regulations (types of permitted use); - in other cases provided for by the legislation on valuation activities.
All of the listed cases of using indicators of the market value of land are related to current legislation.
Source: Real estate valuation: textbook / T. G. Kasyanenko, G. A. Makhovikova, V.E. Esipov, S.K. Mirzazhanov. - M.: KNORUS, 2010. - 752 p.
Income approach
The income approach is used to evaluate objects that can generate income.
For land plots this could be:
• income from their rental; • income that can be received by building an object on the site that will be sold or leased; • income from other activities – agriculture, parking, etc.
If there are no analogues on the market to carry out a comparative approach, or if the differences between the found analogues and the valuation object are too large, the income approach is more preferable and, if used correctly, often allows for a more complete take into account the commercial potential of the object.
At the same time, the income approach also has many disadvantages. The appraiser must predict the property's cash flows - both income and expenses - and how they will change in the future. If it is income from rentals or from the sale of future improvements, the same comparative approach methods, with their inherent disadvantages, will have to be applied to determine the income. Next, you need to correctly predict expenses and correctly determine the capitalization rate or discount rate - the first is used to convert constant cash flows into the value of the object, the second - variable ones (if we take a simplified approach to the definitions of these two rates from the point of view of the practice of their application).
In the case of assessing a built-up land plot using the income approach methods, the general concept remains unchanged - the total cash flow from the entire object is determined, after which the share of the flow attributable to the land plot is allocated, and on its basis - the value of the site, or the value of the entire object is determined, and from it is allocated a share of the cost of the site.
To most accurately determine the cost, if such a possibility exists, it is advisable to use both approaches to valuation.
However, it must be taken into account that this is not always possible, and sometimes, due to certain factors, the calculation error of one of the approaches is such that its use will not lead to an increase in the accuracy of the final result, which means it is better to abandon the use of this approach altogether.
The question remains, where did the third approach go?
Study work
Study work
The department trains and graduates highly qualified specialists in the land cadastre, real estate cadastre of a wide range of profiles, which is confirmed by the demand for specialists produced by the department and a wide range of departments and organizations where graduates work.
Graduates of the Department of Land Use and Cadastre are: Academician of the Russian Academy of Agricultural Sciences, Head of the Department of Real Estate Economics of the State University, Professor, Doctor of Economics. V.N. Khlystun, who held the positions of vice-rector for scientific work at MIIZ, Minister of Agriculture of Russia, and Deputy Prime Minister of the Government of the Russian Federation; V.T. Budnikov – head of the Rosnedvizhimost Administration for the Vladimir Region; T.P. Turchanova – Deputy Head of the Rosreestr Office for the Moscow Region; Professor N.E. Petrov – head of the environmental management department of the Government of the Ivanovo region; A.I. Shirokorad is the deputy head of the Federal Property Management Agency for the Moscow Region, and many other well-known scientists and specialists holding senior positions in Rosreestr organizations and other ministries and departments.
Employees of the department conduct classes in all courses, specialties and faculties of the university. In this case, various types of training are used: lectures, laboratory and practical and seminar classes, calculation and graphic, course and diploma theses, industrial and pre-graduation internships. All operational information can be obtained from the official website of the department.
The following disciplines are taught by the Department of Land Use and Cadastre
Direction 21.03.02 Land management and cadastres (bachelors)
Profile Real Estate Cadastre
1 History of land and property relations 2 Typology of real estate 3 Fundamentals of the real estate cadastre 4 Ecology of land use 5 Record keeping 6 Environmental monitoring 7 Zoning of territories 8 Valuation of real estate 9 Statistics 10 Fundamentals of financial statistics 11 Technical inventory of real estate 12 Certification and inventory 13 Economic mechanism of land management resources 14 Land management 15 Cadastral and investment valuation of real estate 16 Statistical processing of cadastral information 17 Real estate cadastre 18 Natural resources cadastre 19 Organization and planning of cadastral work 20 Metrology, standardization and certification 21 Efficiency of application of cadastral data and land monitoring 22 Efficiency of application of object assessment data real estate 23 Information systems for cadastres and land monitoring 24 Fundamentals of scientific research 25 Industrial practice 26 Final certification
Profile Land Management
1 History of land and property relations 2 Typology of real estate objects 3 Fundamentals of the real estate cadastre 4 Ecology of land use 5 Record keeping 6 Organization of cadastral activities 7 System of state and municipal administration 8 Cadastre of natural resources 9 Fundamentals of financial statistics 10 Information support system for land management 11 Economics and ecology of land use 12 Economic mechanism of land management 13 Land management 14 Valuation of real estate 15 Methods of statistical processing of cadastral information 16 Land use planning 17 Land control and monitoring 18 Features of land management in a municipal district 19 Metrology, standardization and certification 20 Fundamentals of scientific research 21 Efficiency of land control and state land monitoring 22 Efficiency of cadastral activities 23 Industrial practice 24 Final certification 25 Real estate cadastre 26 Land management information systems 27 Cadastral activities (practice)
Profile Land and real estate valuation
1 History of land and property relations 2 Typology of real estate objects 3 Fundamentals of the real estate cadastre 4 Ecology of land use 5 Record keeping 6 Practice of valuation of both land and real estate 7 Theoretical foundations of land and real estate 8 Statistics 9 Fundamentals of financial statistics 10 Use of cadastral valuation results in real estate management 11 Information systems of land management 12 Economics and ecology of land use 13 Economic mechanism of land management 15 Planning the use of land resources based on assessment data 16 Analysis and assessment of investment projects 17 Analysis and forecast of the land and real estate market 18 Organization of assessment work 19 Metrology, standardization and certification 20 Fundamentals of scientific research 21 Efficiency of data application cadastres and land monitoring 22 Land appraisal work 23 Industrial practice 24 Final certification 25 Real estate cadastre 26 State cadastral valuation of land and real estate
Profile Land management
1 Fundamentals of the real estate cadastre 2 Record keeping 3 Real estate cadastre and land monitoring 4 Typology of real estate objects 6 Economics and ecology of land use 7 Efficiency of using cadastral data and land monitoring 8 Information systems of cadastres and monitoring
Profile City Cadastre
1 Record keeping 2 Fundamentals of the real estate cadastre 3 Real estate cadastre and land monitoring 4 Typology of real estate objects
Profile Property management
1 Fundamentals of the real estate cadastre 2 Record keeping 3 Real estate cadastre and land monitoring 4 Typology of real estate objects 5 Metrology, standardization and certification 6 Fundamentals of financial statistics
Direction 04/21/02 Land management and cadastres (masters)
Profile Real Estate Cadastre
1 Modern problems of land management and cadastres 2 Territorial planning and forecasting 3 Real estate cadastre 4 Management of land resources and real estate 5 Organization of planning and implementation of research 6 Information support for the State Committee for Knowledge 7 Regulatory and methodological support for the State Committee for Knowledge 8 Modern problems of land management 10 Modern methods of forecasting, planning and use of objects real estate 11 Modern methods of statistical analysis of cadastral data 12 Innovative cadastral activities 13 Modern problems of cadastres and monitoring 14 Monitoring and cadastre of natural resources 15 Modern problems of land use 16 Scientific and production practice 17 Scientific and pedagogical practice 18 Final certification
Profile Land management
1 Modern problems of land management and cadastre 2 Real estate cadastre 3 Management of land resources and real estate 4 Monitoring and cadastre of natural resources
Profile Assessment and management of urban areas
1 Modern problems of land management and cadastre 2 Real estate cadastre 3 Management of land resources and real estate
Architecture (Masters)
1 Land and real estate valuation
Cost-effective approach
The cost approach determines the market value from the perspective of how much it costs to reproduce an object similar to the object being valued.
Since, in relation to land plots, an object can only be “reproduced” by purchasing something similar to it, the cost approach for valuing land plots is not used. This issue may be debatable in some cases, including such as the creation of artificial alluvial territories, where we can really talk about the costs of creating land plots, but in the general case the position is clear - the cost approach to the valuation of land plots is not applicable.
