Today we’re excited to feature our first guest post from our friends at Integra Realty Resources! From their IRR on Real Estate blog, here is IRR Managing Director Jim Andrews to discuss the complex, ever-changing world of real estate valuation. Many thanks to the IRR Blog and Jim Andrews for the contribution!
Why Consistent International Valuation Standards Are Essential
There’s no shortage of valuation standards today, such as the Royal Institution of Chartered Surveyors (RICS) “Red Book,” the Uniform Standards of Professional Appraisal Practice (USPAP), and the International Valuation Standards (IVS), to name a few. Use of these standards varies by country and based on the clients’ needs. But the real property and business valuation community is increasingly boiling down these rules into a more consistent set of standards as the members of these organizations collaborate in defining the guidelines for appraisals.
I spoke about this topic [last November] at the RICS Summit of the Americas on a panel discussion I helped spearhead, titled “Comparison of Valuation Standards and Movement to Globalization.” Joining me were current and former committee members of the organizations that produce the various standards, such as RICS, the Appraisal Foundation, the Appraisal Institute of Canada, and the International Valuation Standards Committee (IVSC).
Everyone on the panel expressed interest in having a more consistent set of standards. We delved into the reasoning more deeply, and I wanted to share it with you.
1. Enhance the reputation of the profession and promote its usefulness around the world.
Currently, the U.S. uses Generally Accepted Accounting Practices (GAAP) as its set accounting principles. Nearly every other significantly developed country has already adopted the International Financial Reporting Standards (IFRS). The U.S. still hasn’t moved toward total adoption of the IFRS measures, but it has begun integrating IFRS with GAAP. An established set of consistent standards would help in appraising assets and liabilities for financial reporting, especially for companies that control assets in various countries and work across national borders. For valuations for other purposes, the reputation of the profession would be enhanced if the clients could expect consistency in valuation reporting internationally.
2. Simplify the appraisal process.
USPAP is the accepted set of standards for valuation in the U.S. But if a member of RICS is performing the appraisal, it should also comply with RICS standards, which differ in subtle ways. In the Caribbean, I work across U.S. and British territories, which typically require different standards, as well as Dutch, French, and Latin American islands where there are generally no nationally accepted standards. A single set of standards and guidance notes would enable appraisers to produce a credible valuation with a similar report structure regardless of membership or the location of the asset to be valued.
3. Create a market for future appraisers.
Unlike in the U.K., there is a virtual “alphabet soup” of appraisal associations in the U.S. The Appraisal Institute, the premier commercial real estate appraisal association in the U.S., is content to maintain the highest level of criteria for qualification as a member, even at the cost of slow growth — at home and abroad. This philosophy presents its challenges with respect to offering its educational programs in developing countries. At the Summit of the Americas, RICS announced a plan to accelerate its membership growth in the Americas. So far, RICS has largely grown membership in the U.S. by granting it to members of other professional associations that maintain the same level or a higher level of qualifications as RICS. It appears that the draw for members of other associations to join RICS include the fact that it is multi-disciplinary and has a greater international presence and growth potential globally than any of its American counterparts. But to grow membership from the ground up in the U.S., it’ll need the educational programs, experience requirements, and system of assessments currently used in the U.K. to qualify “Chartered Surveyors.” All of this would be simplified if new members in the Americas have one set of appraisal standards to learn and adopt. Regardless of which association(s) your allegiance aligns with, the pathway for new students to become a competent appraiser needs to be consistent.
For now, complying with multiple valuation standards is a matter of simultaneously meeting separate requirements for terms of engagements, report disclosures, recognized bases or types of value, and terminology used to report information. The “how to” part is gradually being removed from these various sets of standards, which are becoming shorter and more refined. We’re making progress in coming to agreed-upon guidelines, but there’s still work to be done. We need to take more proactive steps now to develop common appraisal guidelines that are accepted regardless of location or the professional organization of the appraiser. That way we can encourage consistency and professionalism, further strengthening the public’s trust in valuations. The first step to this could be asking the members of multiple organizations who are active in the various leadership councils to ensure that their members are actively using the relevant sets of standards in their practice and continually looking for ways to streamline the process in a manner that works for all.
Courtesy of Integra Realty Resources. Republished with permission.