TRAINING OF VALUERS FOR SPECIALIZED PROPERTIES

Ana Maria Grmescu, Professor, D.Sc, Dipl.Eng. Technical University Ovidius, Constana, Faculty of Engineering Member of ANEVAR Romania; Drd. Ec. Daniela Barbu CMF Consulting Bucharest Consultant, expert appraiser Member of ANEVAR Romania

The estimation of assets is based on both traditional political economy and modern political economy as well. Estimate principles and techniques had been decided upon prior to 1940 but estimate as a profession has developed after 1940. Changes developed quickly in the economic and business field locally and externally had an impact over the significance of the professionals within the market. In the last years, more and more objective, skilled, professional estimates have been requested in Romania covering a significant range of activities, businesses. In this respect, it is mentioned that the profession of valuer is still developing in Romania. After 1992, countrys economy was in the transition to the market economy, changes of ownership have required a higher amount of information over intangibles and real estates. Thus, a range of real estates have been created which already has a stock exchange based on transaction of similar assets. These assets are appraised at the market value. This approach is used for other assets, too. Market value is for the existing use, value of alternative use. The valuation methodology for real estate properties There are various methods available for real estate valuation and the choice of them depends on the purpose of the valuation and / or of the nature of the properties to be valued as well as the information available to the

valuer. Whenever appropriate, more than one method must be employed to arrive at the valuer conclusion about the property values. Sales comparison approach is adopted for properties which are commonly transacted in the market, and therefore market data and transaction records of them are readily available for comparison. Open Market Value is intended to mean the estimated amount for which a property should exchange at the valuation date between a willing buyer and a willing seller in an arms length transaction after a proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion (International Valuation Standard IVS 1). Income approach is suitable for valuing income-generating properties by which property value is arrived at by capitalizing the anticipated benefits from the property at market-derived rates of return. The method is also adopted for valuing properties subject of existing tenancies or properties commanding monopoly advantages where comparables of similar properties may not be available. For properties involving varying and complicated future cash-flows, the Discounted Cash-Flow (DCF) Analysis can be used. It involves the projection of cash inflow and outflow and capitalization of the resulting net cash-flow at market derived rates of return. Cost approach is suitable for valuing those properties having no identifiable market by which property value is based on the estimation of current cost to reproduce or replace the existing structures and deducted accumulated depreciation on the property. The method is mostly adopted in valuing specialized structures and non-income producing structures. Other approaches are applied for those properties where the above mentioned approaches are inappropriate to assess their values, and can be applied other methods such as residual method or profit method. The residual method, which is mostly applied for site valuation, is based on the hypothesis that the site value represents the residual value of the completed developers profit to be incurred for such property development. Profit method can be applied to business property having certain exclusive features, which are material to its business or otherwise can enhance its volume of business. In using this method, the operating profit generated from the property would be investigated with reference to accounting statements of the business and market information of the same trade. After deducting all the operating costs of the business, profit tax and a reasonable sum for the operators remuneration, the residual amount will represent the cost willing to be paid by the operator for occupying the property. Market value of the property will then be arrived by capitalizing the aforesaid amount with market-derived rates of return.

The residual method of the property valuation is used to define market value of the real estate, if construction work is being done on the estate, in a way of building, rebuilding, extension, refurbishing, assembly or modernization work on the real estate. The value of the property is defined as the difference between the value of the estate after the above mentioned work has been completed and the value of the average cost of the work taking into consideration the investors profit generated on the market from a comparable real estate. The residual method is used often for: performing analysis of profitability of projects regarding the envisaged building, rebuilding, extension, refurbishing, assembly or modernization work on the estate; defining the value of land as a part of the whole estate defining the value of a building as a part of the whole estate Valuation of the property by means of the residual method can be attained in the combination with other methods, using comparable approach, revenue generating approach and cost approach. The residual method can play a decisive role in making investment related decisions. Some circumstances involved are: valuation of real estate where finishing or modernization work requires obtaining a bank loan; valuation of real estate in order to purchase or sell real estate which requires modernization, refurbishing or other work leading to amelioration of standards of the real estate, for instance by upgrading the class of a hotel or office building. There are assets that are sold quite seldom or never. They are called specialized assets and their value is calculated in business mostly using net replacement cost method and not as a way to a business. Basically, the assets that can be valued based on this method are: Oil refineries; Chemical combines where the most significant part of constructions represents structures or support for specialty equipment; Power plants; Installations of basins where constructions, shore development works are directly connected with the owners business; Other specialty projects; Assets located in private geographical areas;

 Specialty urban public works; Exhaustible assets (real assets whose value gradually decreasing- e.g. fields with mineral resources, cemeteries, granted grounds). Public sector assets (e.g.: operational infrastructure assets: roads, public roads, railways, airports, facilities for public and defense services). The net replacement cost related to specialized properties is an estimation procedure used in assessing the value for the existing use. Estimates of the net replacement cost relate to: Cost of specialized buildings; Cost of constructions when some skills are assured in line with the current technology for its operation (restraints to this requirement applies to constructions included on the list of historical, architectural monuments or monuments taken into account to be moth balled); Necessary development cost including cost of infrastructure works, drainage, pumping stations, treatment plants, environmental protection works; Professional fees taxes to get approvals, licenses, impact studies etc. Availability of some regional development subsidies. These values are revised with: Economic depreciation of specialized buildings due to the tehnological level of similar production processes; Structural depreciation of specialized buildings; Functional depreciation of specialized buildings; Strategically depreciation of specialized buildings; Depreciation related to environmental legislation. The estimations of these specialized assets are mainly requested for the following goals: Financial information; Guarantees for credits-mortgages; Investments- insurance companies, real estate funds; Companies of real estates development;

 Estimates for establishing the representative market in the capital market; Business assessments Mergers Liquidations Acquisition Sales

The valuation methodology for industrial properties There are three generally accepted approaches to value the industrial properties namely: cost, market and income capitalization approach. The theory of these approaches is outlined as follows: The cost approach establishes value based on the cost of reproducing or replacing the asset, less the depreciation from physical deterioration and functional and economic/external obsolescence. Cost of reproduction new is defined as the estimated amount required to reproduce the asset at one time in like kind and materials in accordance with current market prices for materials, labor and manufactured equipment, contractors overhead and profit and fees, but without provision for overtime, bonuses for labor or premiums for materials or equipment. Cost of replacement new is the estimated amount required to replace the entire asset at one time with modern new unit using the most current technology and construction materials that will duplicate the production capacity and utility of an existing unit at current market prices for materials, labor and manufactured equipment, contractors overhead and profit and fees, but without provisions for overtime, bonuses for labor or premiums for material or equipment. Physical deterioration is the loss in value resulting from wear and tear in operation and exposure to the elements. Functional obsolescence is the loss in value caused by conditions within the equipment such as changes in design, materials or process that result in inadequacy, overcapacity, and lack of utility or excess operating costs. Economic/external obsolescence is an incurable loss in value caused by unfavorable conditions external to the asset such as the local economy, economics of the industry, availability of financing, encroachment of objectionable enterprises, loss of material and labor sources, lack of the

efficient transportation, shifting of business centers, passage of new legislation, and changes in ordinances. The cost approach generally provides a meaningful indication of the value of land improvements, special buildings, special structures and special machinery and equipment associated with a viable business or justified by economic demand. When market transactions of comparable assets are not available, when data cannot be extrapolated from larger transactions, or when transactions are non-existent, under premise of continuing use, assuming adequate earnings the cost approach is the preferred valuation procedure. The sales comparison approach is based on the value of the asset that is estimated through analysis of recent sales of comparable items of the asset. It is employed in the valuation of the asset for which there is a known used market. Under the premise of the continuing use assuming adequate earnings, consideration is given to the cost to acquire similar items in the usedequipment market; an allowance is then made to reflect the costs for freight and installation. A variant of the direct sales comparison approach is the use of market relationship. Recent market prices for asset in a property classification are determined with respect to age and are compared with a benchmark price, such as the cost of the reproduction new. The ratio is applied to similar property in the classification when the secondary market for the subject asset is too sparse to exhibit appropriate comparables. The income capitalization approach is based on the value that is developed on the basis of capitalization of the net earnings that would be generated if a specific stream of income can be attributed to an asset or a group of assets. This approach is most applicable to investment and generaluse properties where there is an established and identifiable rental market. In any appraisal study, all three approaches must be considered, as one or more must be applicable to the subject equipment. In some situations, elements of two or three approaches may be combined to reach a value conclusion. The valuation methodology for specialized trading properties Specialized trading properties are individual properties such as hotels, fuel stations and restaurants that usually change hands in the marketplace, while remaining operational. These assets include not only land and buildings, but also fixtures and fittings (furniture, fixtures and equipment)

and a business component made up of intangible assets, including transferable goodwill. Under International Financial Reporting Standards (IFRS), like other types of real property, a specialized trading property may be carried on an entitys balance sheet at either cost or fair value. Ti may be necessary to allocate the value of a specialized trading asset between its different components for depreciation purposes. The specialized trading properties are valued in accordance with International Valuation Standard 1 Market Value Basis of valuation. They are considered as individual trading concerns and typically are valued on the basis of their potential Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA), as adjusted to reflect the trading of a reasonably efficient operator and often on the basis of either DCF methodology or by use of a capitalization rate applied to the EBITDA. Valuations of these specialized trading properties are usually based on the assumptions that there will be a continuation of trading by a Reasonably Efficient Operator with the benefit of existing licenses, trade inventory fixtures, fittings and equipment, and with adequate working capital. The value of the property including transferable goodwill is derived from an estimated maintainable level of trade. If the valuation is required on any other assumption, the valuer should make such assumption explicit through disclosure. While the actual trading performance may be the starting point for the assessment of the fair maintainable level of trade, adjustments should be made for atypical revenues or costs so as to reflect the trade of a reasonably efficient operator. It is not included the generated profit in excess from the market expectations that may be attributable to the manager. Although the concepts and techniques are similar to those often used in the valuation of a large scale business, to the extent that the valuation of a specialized trading property does not usually consider tax, depreciation, borrowing costs and capital invested in the business, the valuation is based on different inputs from those of a valuation of a sizable business (International Valuation Standards, Seventh Edition, GN 12 Valuation of Specialized Trading Property/Guidance). The components of a specialized trading property entity value are typically: - land - buildings - fixtures and fittings (furniture, fixtures and equipment including software) - inventory which may or may not be included

- intangible assets including transferable goodwill - any licenses and permits required to trade. The equity is not valued for specialized trading properties. An estimation of the individual values of the components can only represent an apportionment unless direct market evidence is available for one or more of these components to isolate component value from the overall value of the specialized trading property. Changes in market circumstances, whether structural to the industry or due to the local competition or another reason, can have a material impact on value. Its necessary to make a difference between the asset value of a specialized trading property and the ownership value of the business. The valuer will require sufficient knowledge of the specific market sector so as to be able to judge the trading potential as well as knowledge of the value of the individual component elements. The contingent valuation There are essentially two types of the market surveys. The first type of survey is a survey of past actions taken by market participants. An appraisers sales confirmation process is an informal and limited example of this type of survey. Its purpose is to elicit information as to what action was taken and why the participants to the transaction took that action. The second type of survey is a survey of prospective actions that might be taken by possible market participants under hypothetical conditions. A contingent valuation survey is an example of this type of survey. Basically, respondents chosen by some statistically valid method are asked to play the part of market participants in a hypothetical scenario. The respondents are asked to answer questions as to what actions they might take under the hypothetical circumstances, and they might be asked to explain these actions. Over the past few years, a number of articles in real estate literature have presented contingent valuation surveys as a method that may be used for valuing real property or impairments to the market value of real property. The contingent valuation technique is not an appropriate real property valuation technique. The contingent valuation technique is sometimes used in real estate research to attempt to measure the price effects of a detrimental conditions on property values (e.g. which is the amount by which a hypothetical buyer would reduce a purchase price for a residential property because the property was adjacent to a leaking underground storage tank at a service station. The objective is to measure the impact of the leak).

The application of the contingent valuation technique to real estate or real estate damage quantification is unlikely to be reliable or quantitatively meaningful. The contingent valuation technique was neither designed for, nor is it applicable to, the valuation of goods for which there is a market. The use of the contingent valuation technique is important as a corroborative technique and may be the sole technique available to determine property value losses when other local sales data are insufficient. It is common knowledge that real estate markets are influenced by many local factors and broad generalizations across markets are difficult, particularly with respect to environmental impacts. Intervening local markets conditions significantly influence the way in which environmental contamination impacts property values. Contingent valuation technique has found recent application as a method of estimating the value of market goods. It has been more widely used as a technique to estimate the value of non-market goods. Its importance in the valuation of environmental damages for public goods is commonly accepted. It has been used to estimate the benefits of things such as increased air and water quality, increased risk from drinking water and underground contaminants, outdoor recreation and protecting wetlands, wilderness areas and endangered species. McLean and Mundy (1998) advocate to use of contingent valuation in real estate for two reasons: first, they suggest that buyers may be unaware of the impact of contamination on their property values, thus impacting the reliability of sales data. They also find it important to use when the availability of adequate sales data is limited, thus making traditional valuation techniques unreliable and difficult to use. Simons (2002) used contingent valuation to estimate property damage from PCB contamination in a small town market in Alabama. Literature regarding the impacts of petroleum contamination on property value is diverse. A study by Simmons, Bowen and Sementelli (1997) found that residential property within 300 feet or on the same block as a registered leaking underground storage tank (LUST), with the tanks still present, sustained an average reduction in sales price of 17%, holding all else constant. These results were based on proximity only and did not consider whether the properties were actually contaminated or threatened with contamination. The contingent valuation technique was applied also in other contexts: - to evaluate the effect of risk beliefs on residential property values by conducting a case study of a hazardous waste landfill; - to study the effect of a smelter and refining plant on residential property values;

- to discount the property value on similar types of environmental problems across the space and time (hazardous waste facilities, sanitary landfills, chemical refineries and PCB contaminated sites). All has comparable effects on property values. Jackson (2001) addresses published contamination studies in an appraisal context, including studies of all types such as hedonic regression analysis, case studies and published accounts of real estate appraisals, on a variety of real estate types that includes both residential and commercial use. He generally found that contamination has an effect on prices, but the effect was temporary. He also notes the importance of intervening factors, such as market demand, on discount outcomes. Boyle and Kiel (2001) also address the issue on consistency for value diminution for various types of contamination on residential property (usually houses but occasionally residential land) for studies using hedonic regression analysis. After normalizing results to a base year, the authors found, overall, that among air quality studies, results were not consistent. Water quality studies and undesirable land use studies generally had the correct sign on coefficients, and results were different types of contamination. Estimated effects ranged substantially for different types of contamination. Even among fairly typical uses, such as landfills, there was a spectrum of severity, information and other factors involved that markets were able to capitalize. As a methodology, the contingent valuation has its limits. Some survey participants may have a stake in the outcome of a case and could not give biased results in order to secure funds. Others may have issues with the polluter, and give responses based on feelings irrelevant to the issues at hand. To avoid these validity threats, the researchers did not include respondents directly involved in litigation, nor were the polluters named. The survey methodology follows standard research protocols. The initial instrument is pre-tested for the time length, clarity and other potential problems, and subsequent instruments utilized the same of very similar questions. In order to emulate the market and recognize that the top marginal bidder would be much more likely to successfully bid on the property, the number of bidders is divided in half (top half bidders) based on the discount percentage. Further, the data are partitioned again (top quarter bidders) and then analyzed using both pool of bidders. With respect to the pro-bit analysis, both top half bids and top quarter bids are used as dependent variables in separate model estimation. The pro-bit model is used on quantitative studies that include a dichotomous choice dependent variable. The model is specified as:

Y = 0 + 1X1 + 2X2 ++ nXn + u Where Y is the dependent dichotomous variable (top half bid or top quarter bid) and the weights represent the coefficient values of various independent demographic variables (x) and u represents the error team. The independent variables used in the analysis include age, education, household size, gender, race, region, local market and information changes. The results of the pro-bit model show the impact of the independent variables on the respondents probability of being in the top half bid and top quarter bid groups. One of the most important demographic indicators in bidding is the education of the respondent. Those with no high school education were more likely to bid. This relationship was statistically significant at a level of confidence of .01. A positive sign on the coefficient indicates a positive relationship with the probability of bidding: however the coefficients do not have a percentage interpretation in their current form. Males are more likely to bid than females, which is significant at a confidence level of .05. Income has a negative affect on bidding. As incomes increase, the probability of bidding decreases. This is significant at a level of .05. Over the past several years, the contingent valuation has been used to illustrate the potential residential buyer bid prices for contaminated property and those discounts associated with other negative amenities. One interesting finding is that one of the most important demographic submarkets for bidders on contaminated property appears to be under-educated men. Thus, real estate agents faced with selling a residential property that has disclosed environmental contamination are likely to find this market segment most receptive (The Appraisal Journal, Winter 2006). The issue of the safe handling, storage and disposal of hazardous and toxic materials is becoming a significant problem. The impact of hazardous materials on property value is difficult to measure. While some models of real and perceived risk exist, to integrate them with the actual market behavior is problematic. A theory of how contamination influences value that incorporates the damage related to lost income as well as the damages incurred by the lost opportunity to fully use a property is presented in the article The Impact of Hazardous Materials on Property Value, written by Bill Mundy, in April 1992. The real estate impact caused by contamination was analyzed by some researchers who used many statistical methods to determine whether risk associated with various types of hazardous and toxic material has an impact on property value. A review of this research study leads to several

conclusions. First, an adequate general theory of how contamination affects property value has not been developed. A link has not been established between a general theoretical model and a site specific empirical model. Second, property values are affected by many complex events over time. While both the severity and the persistence of contamination have an effect, these factors are not necessarily related. Third, the statistical models have not been properly used. Data sets are too small and the variables are neither properly specified nor adequate. That is, they do not reflect important moderating variables, such as lender/lending institution attitudes, which have substantial effects on the marketability and value of property. Multiple regression analysis is an increasingly used technique in the real estate appraisal field. The appraiser must interpret the results of the modeling process and apply those results to the facts of the situation being analyzed. The appraiser must also have sufficient basis for concluding that the results are credible and reliable. This could involve statistical testing of the results to ensure that they are not biased in a statistical sense and that the model is adequately specified. Complex multiple regression analysis models can produce results that do not reflect the markets reaction to a specific environmental condition or influence, but may reflect other influences masquerading as adverse environmental effects on property values. The impact of contaminating material has on the value of a property can be traced on a time continuum. A clean property has a value equal to full market value. A contaminated property that is perceived as clean can also have a value equal to full market value. When the public or an influential part of it (a scientist, the media) becomes aware that a contaminated property poses a health or financial risk (either real or perceived), the property is transformed into a problem property, which will affect value. When the market perceives a property as a problem, value will be significantly affected in several ways. When a property loses its marketability, it loses also its value. When the contamination is controlled, the value of the property would be expected to increase to full market value, if the public believes scientists and public health experts. This difference between cured value and full market value is the residual uncertainty caused by stigma, and should decrease with time as the publics perception of risk subsides assuming there is no further contamination. For an income producing property, such an apartment, this process has two value-influencing components. The first is the impact the hazard has on the marketability of the property. The second is the effect the hazard has on the propertys income-producing ability. For non-income producing property, the income effect would be the lost utility of the property.

The income effect is the present value of the difference between the property value, as if uncontaminated and the property value as if contaminated, and it is related to lost income. The damage is estimated by discounting the present value of lost income over the duration of an event at a market interest rate in the uncontaminated condition, and at a risk rate in the contaminated condition. The marketability effect quantifies the damage directly related to the lost opportunity to fully use the affected property. The cost is measured by the present value of the diminished value over the duration of the event at a market rate. Mundys article on contaminated real estate is significant for two reasons. First, it provided guidance to the valuation community when little existed. Secondly, it inspired a spate of articles on the topic. In recent years, the contingent valuation has been suggested as an appropriate fourth approach to value, the first three being: the sales comparison approach, the cost approach and the income capitalization approach. The contingent valuation method has been in use for more than 40 years, typically as a technique for measuring the value of non-economic goods (goods that are not traded in an active marketplace). There are relatively few published studies examining a specific real estate impact using contingent valuation methods. The unreliability of the contingent valuation surveys is especially significant for appraisals submitted in litigation assignments. One of the accepted methods for demonstrating the reliability of nontraditional appraisal methods, such as contingent valuation, is to show that the accuracy of the method has been tested in the marketplace. The reliability of the contingent valuation in the courtroom must therefore be carefully considered by appraisers, attorneys and judges before it is used as an alternative to the generally accepted methods for determining economic damages to real estate. Valuation methodology for the historical monuments The historical buildings are recognized in Europe as having a positive value, not only cultural, but also economic, in terms of tourism, social status and commercial efficiency. Many historical buildings are monitored seeing the protection of the unique qualities and characteristics that give their architectural, cultural and/or historical value.

When analyzing such properties, the evaluators must be aware of the financial and cultural value of the historical buildings, and the potential negative influence given by the augmentation of their financial and cultural values, as well as the consequences of some intervention measures. This is the reason why the evaluators must identify and inspect the historical buildings in the process of evaluation, so that their financial, cultural, architectural and historical interest can count, including any intervention of protection, in determining the value of the building and the requirement of intervention measures. The evaluation of the historical buildings is a very complex activity, that must consider the knowledge of the building`s exigenty, as well as the interpreting the contribution of the intrinsic valoric components in determining the value, in the context of the structural and functional exigency, of the adequate intervention technologies, and last but not least, the proper materials used in this interventions. When advising about repair works inside an evaluation, it is imperative that the evaluator has the certitude that, in case of performing the evaluation, the project does not affect the stuctural or historical integrity of the building, its future structural state, or its preservation. When there are doubts about possible influences or consequence of any works or modifications, the evaluator must mention a subsequent recomandation from a proper qualified person, with no financial interest and adequate training in repairing and maintenance of the historical buildings. Considering this simple approach, it will be a sure fact that the evaluator will not make inadequate recomandations, or that they could deteriorate the value of this limited and important resource. The notion of historical monument includes both the architectural conception and the urban or rural settlement that show evidence of a certain civilisation, of a significant evolution, or a historical event. Therewith, the notion of historical monument extends also on small works that over time aquired a cultural semnification. Historical monuments are immovables, buildings and fields situated inside Romania`s territory or outside the borders, properties of the romanian state, significant for the national and universal history, culture and civilisation. The preservation of the historical monuments represents the whollness of measures with scientifical, legal, administrative, financial, fiscal and technical character, intended to ensure the identification, research, inventory, rating, tracking, preserving, including custody and maintenance,

strengthening, restauration, and valorisation of the historical monuments, and their social, economic and cultural integration in the local communities. To preserve the historical monuments, legal economical measures are established. Public servitudes can be applied on historical monuments, legally established. The attribute of historical monument must be marked on the building by a note applied by the city hall agents, according to the legal norms of signaling of the historical monuments. The obligation regarding the usage of the historical monuments represents the act that defines the conditions and rules of usage or exploitation and maintenance of the rated real estate, called obligation concerning the usage of the historical monument, wich accompanies the title deed, concession act or leasing act, on the entire life of the building in question. The obligation concerning the usage of the historical monument is a servitude constituted in the building`s benefit, and it is inscribed in the Land Register by the owner, in a 30 days term from de comunication date. The obligation concerning the usage of the historical monument is a part and parcel of the Technical book of the building. In case it doesn`t exist, the obligation concerning the usage of the historical monument holds place for the techical documentation of the utilisation of the real estate, according to law. The protection area of the historical monuments represents the field areas with the afferent immovables delimited by the town plans, approved according to law, wich establishes rules regarding the works execution. Until the establishment of the protection area of each historical monument, according to art. 8 from 422/2001 law, it is considered protection area the surface defined by a radius of 100 m in the urban localities, 200 m in the rural localities and 500 m outside localities, measured from the outer limit, around the historical monument. The protected area represents field areas with te afferent immovalbes, situated in the urban area or outside it, delimited by the town plans, approved according to law, wich establishes the rules for interventions in the built or natural protected areas. The following historical propertie can be protected: urban and rural historical configurations, along with natural or cultural landscapes and their topography historical architectural buildings and urban complexes and their configuratios

urban or rural architectural works, along with afferent accessories and surroundings cemeteries, parks and gardens, and other forms of organised landscape fortifications and other military works water tanks along with technical afferent equipment archeological sites and every object discovered during the archeological research, including ground degradation or improving, such as caves, mines, castles, graveyards ethnographic buildings, such as tipical urban or villages habitations industial buildings, structures, manufactories, equipments additions or improvement for mines, workshops, steel works, that reflect de industry, culture and science development, wich are characteristic for old and new forms of businesses and industries places and buildings that reflect traditions, or commemorate historical events or the activity of eminent people or institutions other properties that deserve being conserved because of their scientifical, artistic, historical or cultural value. Aspects regarding the uniqueness of the historical properties

Elements that differentiate the historical estates from the other estates include: 1. high level of legal protection 2. architectural, historical, scientifical or artistic value 3. limitations concerning - their availability - their removal - any change in their utilisation - modernisation works 4. the obligation of making them accessible to the community, and for scientifical and education purposes The elements that differentiate the historical estates from the other estates include: 1. the envisage of the immediate vicinity, as a part and parcel of the real estate field, settlement, sights of the property and its background 2. rare occasions when they appear on the market 3. frequently, the partial or complete modification of their initial utilisation

Data sources and informations about historical properties Before beginning the evaluation process, the evaluator must gather sufficient data and information about the historical property, allowing him to make an evaluation that considers all relevant factors. The data sources and informations about the current status of the real estate inscribed in the building book, cultural and historical values, and preservation works include (besides the sources that are usually engaged in the evaluation process) documents contained in the building book. These documents can include (depending on the property`s location): the official decision that rates a cultural asset as a listed property any kind of demonstrative paper iconographic and photographic documentation any kind of legal documentation any kind of technical documentation about the preservation or other works on the building records about foregoing preservation works, along with estimations about the cost of these works and the finance sources any other documents that define unique aspects of the historical property In the case of historical properties that are not included in the record and rating register, the evaluator must search data and informations, wich will probably be put at his disposal by the culture directorat who administrates the monument. The typical sources can be: historical documentation; inventory descriptive or illustrated documentation iconographic or photographic documentation stipulations of the local maps regarding the real estate`s position, or other decisions on the development conditions Documents and specialist`s opinions can be used as an informig source if, according to the evaluator, they are indispensable in the evaluation process. General rules for determining the historical property`s value Before attempting to determine the historical property`s value, the evaluator must consult the authorities responsable for the historical properties, congruent with the historical properties maintenance laws.

In the case of historical properties, wich contain mostly parks, gardens, forrests and other landscape areas, authorities can be involved, beside those who deal with real estates consisting mostly in buildings. Unless legal stipulations allege otherwise, the historical property`s value must be determined as the integral value of the field and it`s improvement, including close surroundings, landscapes, external influences about the properties, with a particular attention on the environment elments that can increase the property`s value, by amplifying the landscape`s characteristics. If the evaluation process requires the separate determination of the value of the field and other elements, the evaluator must keep in mind that the sum of the real values of separate elements is not always equal to the property`s value. As a part of the historical properties evaluation process, the evaluator must consider the criterion he will adopt in approaching the method and tehnique, with a special attention on: any kind of decisions from the authorities responsable with the maintenance and preservation of the historical real estates local maps stipulations concerning the usage of the historical real estate and its surroundings the purpose in wich the evaluation and the evaluation report will be used data and market informations availability the repair condition of the real estate to be evaluated any other circumstances concerning the historical character of the real estate. The value of the historical property is determined after the simultaneous consideration of the technical state and actual usage, wich can differ from the authorisation emitted by the qualified authorities. In the last case, the value must be diminished by the sum of the costs required to bring the real estate at the actual exigencies level. If the legal stipulations do not specify the method for the value establishment (market value or substitution value), the evaluator determines both values, and adjust them, thus justifying the final result. If the real estate, or any of its elements have been introduced in the building list registry, the evaluation must not consider any other special condition concerning the sale, the establishment of any successor or other legal title for the property usage, especially lease or tax exemption. Informations about such exclusions must be included in the evaluation rapport.

Determining the market value for historical real estates The market value for a historical property is obtained by adopting the comparison approach, or the revenue approach, depending on the current state of the real estate market, regarding the real estate`s position, grade, type and character. Due to the unique character of the historical real estates, it is also necessary the utilisation of the informations from the following real estates markets: local market regional adjacent markets national or inter-regional market (concerning similar real estates from the point of view of the type and function) international markets (concerning real estates with peculiar significance, unique value) The market value of a historical real estate that generates or could generate incomes must be considered by approaching and utilising income based techniques. The evaluator must consider the benefits obtained, and as well the costs to be stood up, along with the legal requirements concerning the real estate`s protection, and the limitations wich the owner or the occupant will be subject to, such as: the owner`s or tenant`s benefits (rent, incomes from businesses with the real estate, the unique prestige and attraction by the real estate) the costs of real estate usage or tenement the costs of financing need, for the real estate`s improvement, imposed by the authorities for the preservation any limitations imposed by the real estate`s uniqueness any connection with adaptation or preservation works, requested to bring the real estate to the imposed state any limitations concerning the possibility of extending the expectation period for the technical documentation, wich is a condition for receiving the approval for the preservation or construction works any tasks related to the requirement of using traditional methods in the preservation works, that can involve high price building materials, and high qualified specialists in civil engineering or preservation works, forestry specialists, or landscape artist to upkeep the adjacent area of the

real estate anu other obstacle of individual nature that depends on the real estate`s type and prestige.

Historical real estates that at the evaluation date do not have a commercial character can be evaluated using the income method only in special cases, if at the cost accounting can not be used the comparison method, and when the purpose of the evaluation requires determining the market value of the properties, for alternative usage. In these cases, the evaluator must justify in detail the presumptions used in his analysis, wich can not appear in the preservation authority`s requests. The market value determination for the historical property using the comparison method is based on the trade affair market value of the similar properties (as type, rank, number and functional character). When making such an evaluation, the following aspects must be considered: 1. physical aspects location acces to transportation facilities the nature of close vicinities the field area technical al economical parameters of the building the position of the mentioned elements, and the relation between them, the state of usage the state and character of the media services the possibilities of development, congruent to the special conditions, imposed on the real estate, and the development plans stipulations 2. non-physical aspects the unique attraction of the location, and spacial-architectural hypothesis the homogeneity of the style and the architectural form aestethics the historical and cultural value the sparseness of historical properties in the limited real estates maket

When using the comparison method, the real estates to be compared with must be choosed adequate by the evaluator, depending on their relevance. When choosing similar market transactions, legally restrained transaction must be omitted. In cases when circumstances (such as limited database) obligate the evaluator to consider these transactions, the data must be adjusted, and the evaluator must justify these corrections. When comparison method is used, it is not utilised a statistical market analysis,

considering the individual characteristics of the real estates, and the limited transactions on this market. Determining the replacement value of the historical real estates The replacement value of the historical real estate is equal to the reconstruction costs minus the devaluation; this represents the sum of the market value of the field and the replacement value of all the improvements and real estates (buildings and other immobilised elements, as well as natural elements). The replacement value of the historical real estates can not be, in any circumstances, perceived as the market value. The replacement value is detemined by using: 1. the comparison approach, regarding the field evaluation (e.g. cost accounting of the field) 2. the constructive approach, to determine the replacement value of the buildings and other real estates In legal specified cases that require a separate evaluation of the land, the evaluator must choose a comparison approach, given that for unbuilt space he must not consider trade affair prices of the rural fields or forrests for his comparison. In special cases, if disposing of sufficient data, the evaluator will evaluate such a field with the composite technique, the residual method that uses the present usage income method, and a cost analysis for the necessary investment funds in order to achieve the necessary exigencies. The result of subtracting the last from the first is the residual value of the field. In the cost method, the evaluator determines the replacement value of the ordinary buildings. By using the cost method in the historical real estates evaluation, the technique of the replacement cost is not used. The replacement value calculation requires a detailed analysis of the real estate`s status from the evaluator, analysis wich must include the determination of the devaluation level, as well as the loss of architectural details and functional character of the real estate, construction elements and combination of these elements if they constitute an architectural entity. To determine the devaluation levels above mentioned, further considerations must be made, concerning the costs of bringing the real estate to the following stage: 1. the stage of total technical usage of the real estate 2. the stage of total architectural and cultural value

3. the stage of total functional usage The repair level must be correlated to the guidance validated by the preservation authorities. The costs involved by bringing the real estate to the above stages must be compared to the actual value loss of the real estate. Except from the case of contrariwise legally stipulations, the evaluator must effectuate the real estates and their elements evaluation, and when determining their market value or replacement value, to utilize adequate evaluation methods and techniques, and to pay attention to: 1. the landscape integrity, which denotes the harmony between natural surroundings and the real estate's architecture 2. the landscape's attractiveness, which reflects the environment's influence on the close vicinity of the architectural elements, who has a visible effect on the whole historical real estate 3. using the landscape and space, which combines the utility of a certain environment element with the architectural and spatial structure of the real estate concerning possible preservation works. These can be: - preserving or maintaining the actual state - renewal and exposure of the elements that block the settlement, replacing the missing parts - adapting, which, besides preservation works, requires changes in composition related to the introduction of new function - restitution, replacement based on the original and iconographic materials, disaffection due to lack of historical style, over investment or over decorating the historical real estate. The mentioned elements influence the real estate's value more than the environment elements, who do not usually have an intrinsic value, because of the limitations to which are subject. If the evaluator considers the above conditions in his evaluation, he must always justify the influence which these aspects had on the evaluation's result.

Taking into account the intrinsic character of the specialized assets, their valuation needs training of a specialized valuer. Valuing specialized assets requires expertise in engineering, economics, finance and general

business knowledge. The professional expertise must be brought to the valuation process in the development of cost, income and market valuation methods. The engineering and construction costs of highly specialized properties require the inside of the engineers and economists who have addressed the development of the costs and depreciation issues for their entire career. The specialists expertise in financial analysis and capitalization of the income techniques are used in arriving at value conclusions to incorporate the economics and prospect of the property being appraised. These specialists should be selected in compliance with their competence, experience, well-known reputation in the field and with postgraduate skill completed with continuous training programs. If the appraiser knows the agreed transaction price before doing the appraisal, then small errors could indicate poor methods. If appraisals always equal the transaction price, then appraisals are not adding new information to the decision process. Thinking about appraisal methods as protocols, leads to interesting observations. First, compared to the detailed protocols of the quantitative chemistry manuals, the instruction on how to carry out a three approaches to value exercise a fairly vague. How many sales should be collected? How should comparables be selected? How is the discount rate arrived at? Which hedonic characteristics are included in a price differences model used to adjust sale prices? Where do the adjustments factors come from? Experts may look at different evidence and used different methods to arrive at their value estimates. To a degree, this creativity in valuation methods arises from the diverse nature of valuation assignments and therefore results in better valuation. But the profession and regulators have struggled with the lack on standardization and difficulty in quantifying and controlling likely errors. The Uniform Standards of Professional Appraisal Practice (USPAP) aims to set forth and embody the general principles and practice standards in broad terms, including relationship with clients (engagement letters, scope of work and disclosure) and uses of reports as well as appraisal methods. It is essential that appraisers develop and communicate their analysis, opinions and conclusions to intended users of their services in a manner that is meaningful and not misleading. USPAP includes sections on ethical standards and general principles. Protocols may vary greatly depending on the specific context, property type and purpose of the assignment. Generic steps similar to the following are common to all real estate appraisal protocol:

- definition of the appraisal problem and choice of appropriate value definition and methods (protocols) - inventory of available data on transactions and property characteristics to be used in inferring prices and selecting a sample of sales - choice of particular sales to be used in inferring prices, including how many sales to use and how to choose them - a price differences model that lists relevant characteristics to compare between properties and a method for estimating the price effects of these differences - a method of weighting the individual members of a sample of transactions used in determining the final price estimate. Specific protocols for a particular type of property and purpose for an appraisal would fill in the details of the generic steps in an appraisal process. Developers of Automated Valuation Models must use specific protocols, a key to consistency of these methods results. We need more protocols for different kinds of property. Certainly at least several dozen protocols, and perhaps hundreds of protocols are needed for various kinds of properties and markets, as well as, perhaps, custom protocols for unusual properties. For example, to value a chicken farm the valuer need to know chicken farming. Points of comparison or adjustment factors include property characteristics that have to do with the efficiency of chicken rising such as design features of specialized buildings, access to markets for chickens, and so on. The issues are different for those that are important in valuing a farm raising wheat or sheep or sugar beets. Each of these different kinds of farm operation should be valued using a different pricing model as part of the overall protocol. Specialists do commonly use such detailed protocols for particular types of property. Letters of instruction and the internal training and procedures of appraisal firms could make these methods explicit and require their use and thereby help standardize the quality of appraisal estimates and their error distribution. In cases where the assignment is unique, or perhaps in every case, appraisers should keep a detailed record of all the steps in the valuation process starting with sources consulted for data, the universe of sales evidence identified, methods used for choosing sales and methods used for pricing differences. In addition to types of properties requiring valuation in methods, the purpose of the valuation may also require adapting the protocol to the question at hand. The protocols also have to be sufficiently detailed to

ensure consistency in their application, otherwise, the accuracy of results become uncertain. There is a trend towards specialization in appraisal, meaning that different appraisers are developing more detailed protocols for particular types of valuations. These protocols need frequent or even continuous error monitoring to confirm their performance. They do not replace real estate expertise, but rather redirect some appraiser attention from individual appraisal assignments to the methods or work processes used for each type of assignment and to monitoring the performance of those more specific, clear and detailed methods. These requirements imposed by this profession are sustained by the fact that currently there isnt a proper academic training for the valuer of specialized assets. It is mentioned that a Committee of Valuers that are members of the National Association of Romanian Valuers has been working since 1992. They graduated short time courses organized by the National Association of Romanian Valuers (ANEVAR), Body of Experts and Licensed Accountants of Romania (CECCAR), Romanian Institute of Economic-Social Research and Opinion Polls (IRECSON in Romania), Chamber of Commerce and Industry (CCIR in Romania) etc. At the same time, ANEVAR has promoted continuous training programs and professional strategies. ANEVAR is a member on the Executive Board of the International Valuation Standard Committee (IVSC), member of the European Group of Valuers Associations (TEGoVA) and of the World Association of Valuation Organizations (WAVO). ANEVAR has achieved international recognition in the field of valuation, establishing cooperation relations with professional associations in the United States of America, United Kingdom and many other European associations operating in this field. The organization of some postgraduate courses by the higher education institutions in order to develop a body of evaluators in specialized properties is in line with the ANEVARs activity of promoting this profession at high levels. Appraisal will always require judgment and decisions, both in mass and individual appraisal methods. Despite these difficulties, more transparency and attention to consistency in methods and the error distributions generated by consistent methods should add value to appraiser products.

References
1. Gramescu, Ana Maria, Prof. Dr. Eng. and Barbu, Daniela, Drd., Ec., The Technical Expert Guide, 2nd edition, AGIR Publishing House (The General Association of Romanian Engineers), Bucharest, Romania, 2006, ISBN 973-720-042-X. 2. Gramescu Ana Maria, Prof. Dr. Eng. and Barbu, Daniela, Drd., Ec. The Valuation of Real Estate Properties in Construction, Publishing House EX PONTO, Constanta, Romania, 2006, ISBN (10) 973-644-520-8 and ISBN (13) 978-973-644-520-0; 3. Gramescu, Ana Maria, Prof. Dr. Eng, coord. and Barbu, Daniela, Drd., Ec. The Valuation of Specialized Properties in Construction, Publishing House EX PONTO, Constanta, Romania 2005;

4. Hodges, McCloud, Three Approaches, The Appraisal Journal, Winter, 2007 5. International Valuation Standards, IVSC, Seventh Edition, 2005 6. Jackson, Thomas, Evaluating Environmental Stigma with Multiple Regression Analysis, The Appraisal Journal, Fall, 2005 7. Kummerow, Max, Protocols for Valuations, The Appraisal Journal, Fall, 2006 8. Lennhoff, D., Nine Big Ideas: Appraisal Journal Articles that Influenced a Generation, The Appraisal Journal, Winter, 2007 9. Powell, K., Appraising the Appraisal Process, Professional Builder, July, 2004 10. Roddewig, R., and Frey J. D., Testing the Reliability of Contingent Valuation in the Real Estate Marketplace, The Appraisal Journal, Summer, 2006 11. Simons, R. and Winson-Geideman, K., Determining Market Perceptions on Contamination of Residential Property Buyers Using Contingent Valuation Surveys, JRER, vol 27, no. 2, 2005 12. Wilson, A., Contingent Valuation: Not an Appropriate Valuation Tool, The Appraisal Journal, Winter, 2006