Real estate purchase

Property appraisals to become subject to standard rules across Germany in early 2022

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09.

September 2021

The re-enacted Real Estate Valuation Ordinance (ImmoWertVO) will enter into force in early 2022. The purpose of the legislative amendment is to establish uniform principles that will make the necessary data and benchmark land values required in property appraisals usable nationwide.

Existing rules falling short of the mark

The requirements specified in the present ordinance set the parameters for the work of property valuation committees. They include guidance for applying any of three eligible valuation methods, these being the depreciated replacement cost approach, the sales comparison approach and the income capitalisation approach. The methods are used to establish either the fair market value or the market value. One of the perceived shortcomings of the existing version is that the specifications for determining the required data resemble recommendations only. This explains why the individual guidelines have so far not been uniformly implemented on the state level. To satisfy the need to adjust the guidelines and to make them definitive, the Federal Government decided to make the ordinance more specific. Detailed regulations that used to be codified exclusively in the individual guidelines will be gathered into the reenacted ImmoWertV ordinance. At the same time, its implementation will become mandatory. In order to enhance the intelligibility of certain sections, the government stated that it may issue explanatory notes for typical applications.

Concrete addenda and changes to the 2010 version

The reenacted valuation ordinance focuses specifically on the subject of a property’s total useful life and remaining useful life. The total useful life designates the expected service life of a given property, although it is not possible to generally define it for every type of property. For this reason, benchmark figures used to be quoted for certain types of buildings. In line with the principle of model integrity, the proposed solution will be based on the application of standard model approaches that are expected to generate clean and reliable data. According to the reenacted ordinance, surveyors will have to use one and the same model approach for measuring and for applying a property’s required data. The idea is to defuse the risk of distorted results that could be returned when using different model approaches, reference units or parameters. Definitive for the remaining useful life of a property—for example, after several modernisation measures—is the newly introduced “degree of modernisation.” Each of several successive modernisation measures is awarded points by a building surveyor that, when combined, determine the current degree of modernisation. The higher the point score, the longer the remaining useful life. Another aspect of the reenacted ordinance concerns the quality of the data used. Under the new regime, the data relevant for the appraisal will be thoroughly examined in terms of their eligibility, adaptability and origin before being used to implement individual guidelines. The reenacted ordinance also includes general requirements to facilitate the uniform implementation on the state level. Sources: www.haufe.de www.bmi.bund.de www.bmi.bund.de

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