Valuation methods for real estate

Panel of real estate appraisers. The offices of the appraisal committees in the cities and municipalities receive copies from the notaries of all real estate purchase contracts that have been processed in their area of responsibility. This is used to compile the property market report. In addition, the individual sales are included in the collection of purchase prices.

Overview of the purchase cases that have taken place. If inventory was also sold, this is also listed, as are parking spaces, underground parking spaces or garages.Overview of the purchase cases that have taken place. If inventory was also sold, this is also listed, as are parking spaces, underground parking spaces or garages.

Land value defined for a specific area - defined by the appraisal committee - in the normal course of business.

The different buildability (floor space ratio, floor area ratio), the type of property that can be built on a plot (house, multi-family house) and the size of the plot lead to the fact that an adjustment of the land to be valued has to be made with the standard land value plot and its characteristics. The expert committees define the adjustment factors with which an adjustment can be made.

The floor area ratio is defined in § 19 of the BauNVO. It specifies the proportion of the area of a building plot that may be built on.

A GRZ of 0.2 for a 1000 m² property indicates that 20% of the property can be built on.

The number of stories is defined in § 20 of the BauNVO. It specifies the total area of all floors on a building plot that may be built.

A floor area ratio of 1.2 for a 1,000 m² property indicates that the total floor area may be 1,200 m².

There are construction cost tables for determining the production costs (Section 21 (4) WertV). These indicate the average construction costs (normal production costs) to be applied per m² of floor area for a specific type of building.

In the meantime, the normal production costs 2010 (NHK 2010) have become established. The gross floor area according to DIN 277 (1987) is largely used as a reference basis.

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Gross floor area (GFA) is the area calculated from the sum of all floor areas of all plan levels of a building. It is to be determined floor by floor.

For calculations according to the standard of the valuation guideline, the uncovered areas as well as balconies are not counted as GFA. Attics that are undeveloped but could be developed in terms of height are also taken into account. In addition, a separate building type is provided for this in the NHK.

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In order to obtain the weighted cost characteristic value according to the normal production costs, an evaluation of the equipment is necessary. Here, the areas: Exterior walls, roof, windows and exterior doors, interior walls and doors, ceiling construction and stairs, floors, sanitary facilities, heating as well as the other technical equipment according to 5 standard levels. Depending on the building type, cost values are assigned to these individual characteristics. The weighted cost value is adjusted to the current value in accordance with the construction cost index and is thus included in the asset value.

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The material value guideline determines the rejuvenation of the year of construction according to a point system. In the process, 8 areas are evaluated. The maximum number of points that can be achieved is 20. The higher the score, the greater the influence on the remaining useful life of a building. In addition to the actual year of construction, a fictitious year of construction of the property is calculated. This takes into account the fact that a property whose service life is normally set at 80 years is put in a better condition by modernization and can therefore be used for longer.

In the meantime, the reduction in age value is calculated on a straight-line basis. Assuming a property that is 40 years old and a "lifetime" of 80 years, in this case the production costs of the structural assets would be reduced by 50%.

Based on the experience of past years, the expert committee determines recommendations for the market adjustment of the normal production costs for a city or a specific area. In Cologne, for example, a distinction is made between market adjustment factors for Cologne on the left and right bank of the Rhine. In addition to the land value and the type of property, the preliminary asset value is also included in the market adjustment factor.

Frequently, there are still necessary adjustments from the expert's point of view. These are to be corrected under the item "other corrections according to § 8, para. 3" in the calculation of the asset value.

Sustainable annual cold rent of a property (incl. parking spaces). The sustainable cold rent can be determined with the help of the rent index. Even if a property is clearly rented at too low a price, the sustainable rent must still be applied. In such cases, a correction is made later by applying a reduced rent (financial disadvantage until a sustainable rent is achieved again with rent increases).

Costs that cannot be allocated to the tenant are also included in the calculation of the capitalized earnings value. In addition to management costs, maintenance costs and the risk of loss of rent are taken into account. Operating costs (costs incurred on an ongoing basis, such as electricity, water, janitorial services and garbage collection) that cannot be allocated to the tenant are taken into account. For the sake of simplicity, these are usually calculated as a lump sum.

The property interest rate is the average interest rate on the market value of the property. The property interest rate is mainly dependent on location, building type and remaining useful life. The higher the property interest rate, the higher the yield, but also the higher the risk. If one wants to calculate the property interest, the annual net income can be divided by the purchase price as a makeshift formula.

For the determination of the capitalized earnings value, experts can use the property interest rates of the appraisal committee and of real estate associations.

This is the gross profit less operating expenses.

Property cleaning income reduced by land value component (value of land subject to interest at property rate).

Present value factor. This is derived from the property interest rate and the remaining useful life of the property. pb modernizations to the property have taken place and a fictitious year of construction can be assumed.