EVS 2016 Talking Points

What’s special about the new EVS? Aren’t standards fairly constant?

EVS have become the default valuation standards for Europe, recommended in the Mortgage Credit Directive and given primacy over all other standards by the European Central Bank in its Asset Quality Review of banks’ real estate collateral.

The EU authorities want reliable valuation standards all over the Union and that gives TEGoVA a special responsibility to adapt EVS to the rapid EU mutations in banking supervision. Mortgage Lending Value is a case in point with detailed analysis and explanation of the key issues and approaches to be followed. Other systemically key updates are the guidance on Property Valuation for Securitisation Purposes and Property and Market Rating.

What are the key new points about MLV?

Explaining that MLV can be used by banks as a risk management measure in a number of ways in the context of lending secured by real estate, capital requirements for banks, funding of mortgage loans through covered bonds secured by real estate as the covered assets and the development of capital market products converting real estate and real estate collateral into tradable assets like mortgage-backed securities.

And explaining in detail the valuation approaches on which MLV can be based: Income Approach, Cost Approach, Comparison Approach.

If EVS are the default standards for the Union, do national standards still have a purpose?

European Valuation Standards are like EU law itself: a common European corpus of minimum standards that all countries must adopt in their own standards, retaining the freedom to ‘gold-plate’ with rules having a special local purpose. But just as with EU and national law, national exposure to EVS has the effect over time of making national standards more similar as they increasingly mirror EVS.

Energy efficiency and sustainability of buildings are a big EU concern. Does EVS show how to put a value on this?

There are times when the united European valuation profession needs to guide the EU authorities and not the other way around, energy efficiency valuation being a case in point. There is tremendous political pressure to ‘put a value’ – and as high as possible! – on energy efficiency improvements in buildings. EVS helps raise the valuer’s consciousness of energy efficiency issues and EU instruments such as the energy performance certificate and its recommendations for improvements. But at the same time EVS 2016 upholds the scientific and professional obligation on the valuer to value energy efficiency “so far as relevant, reflecting market circumstances, in providing his opinion as to the value of the property on a recognised basis of valuation”.

The central tenets of valuation practice and professionalism cannot be hostage to political pressure leading to skewed estimates of value, no matter how important the environmental goal. The environment does not gain from loss of faith in the reliability of valuations.

What does EVS 2016 dictate concerning the use of automated valuation models (AVMs)?

That as properties valued using AVMs have generally not been inspected, neither inside nor outside, such valuations will therefore not be EVS compliant, even if the valuation process is valuer-assisted. If the property has been inspected then the valuation can be EVS compliant, as long as the valuation  process has been valuer-assisted.

What’s the relevance of the section on EU legislation and property valuation to a practicing valuer?

EU law is the origin of an increasing amount of the local property law underpinning valuation and valuers need to at least be conscious of this especially as it helps them understand what parts of local rules cannot easily be changed through local or national politics. REVs and TRVs are under particular obligation to understand valuation-relevant EU law as part of a commonality they will share with European clients or when working on other markets.

Is EVS 2016 of special significance to REVs and TRVs?

All 70,000 valuer members of the TEGoVA Member Associations are under obligation to follow EVS, but REVs and TRVs have the special responsibility that falls to an elite that is more likely than other valuers to practice outside the home country or have foreign clients and more likely to work for banks. Thus, REVs and TRVs have a greater need to be proficient with Mortgage Lending Value which means acquiring the knowledge and skills needed to evaluate geopolitical events, political risk, currency fluctuations and economic growth. They need to be able to eliminate speculative elements and recognise current but unsustainable market phenomena and rising or falling trends no longer supported by fundamentals. TEGoVA’s educational efforts are adapting and expanding in consequence.