Just Accepted

ORIGINAL ARTICLES


 

From fair market value to judicial market value of real estate

Silvio Menghini, Veronica Alampi Sottini, Roberto Fratini*

Department of Agriculture, Food, Environment and Forestry (DAGRI), University of Florence, Italy

Accepted: 2024-02-13 | Published Online: 2024-02-29

DOI: 10.36253/aestim-15228

ABSTRACT

The paper proposes a brief analysis of the main elements that, on a theoretical, normative and situational basis, affect the value of properties placed as collateral for loans, with particular reference to the value they assume in the event that they are affected by an enforced procedure instead of being subject to normal sale, in free market conditions.

Starting from the classic analytical estimate of the fair market value of a real estate asset in free market conditions, the paper will define the principles the appraiser has to follow to quantify the value of the asset from which to start the judicial auction. Considering the regulatory mechanisms in place in Italy, the paper will put in evidence how a value calculated for an execution sale of a property occurring in a foreclosure process is considerably far from its fair market value and even more from its final judicial value, considered as the amount that will be recovered at the end of the sale of the property by judicial auction.

For debtors and creditors, the significant differences between fair market, execution and judicial values become an increasingly topical issue in the face of the growing number of default and distress of loans.


Discounted Cash Flow Analysis and Prudential Value DCFA Formula

Maurizio d’Amato1,*, Giampiero Bambagioni2

1Department of Civil, Environmental, Land, Construction and Chemistry (DICATECh), Polytechnic University of Bari, Italy

2Department of Civil and Environmental Engineering (DICA), University of Perugia, Italy

Accepted: 2024-01-24 | Published Online: 2024-02-01

DOI: 10.36253/aestim-14037

ABSTRACT

According to IVS 2023 the terminal value of a DCFA can be calculated in respect of the three fundamental appraisal approach: market, income and cost. Specifically, “Where the asset is expected to continue beyond the explicit forecast period, valuers must estimate the value of the asset at the end of that period. The terminal value is then discounted back to the valuation date, normally using the same discount rate as applied to the forecast cash flow” (IVS 105 Valuation Approaches and Methods, para 50.20). Although academic and professional normally refer to direct capitalization to calculate the exit value (scrap value, going out value) different approaches are possible. In particular it is possible to calculate the exit value using the market approach. The present work starts from an original model of Discounted Cash Flow Analysis proposed by Simonotti (2006) to propose possible alternative to the original formula. The model proposed, as defined for the paper “Prudential Value DCFA Formula (PVF)” provides methodological alternatives to the original model in order to apply the method in different property market conditions allowing the appraiser to represent even property market in recovery or falling market phase, or prudential assessment of worth and opinion of value. In particular the proposed model replace the compound growth of the property value included in the traditional Simonotti’s model, with a linear growth or even a combination of both. The paper emphasize how property valuation standards can not be considered as immutable but they may be considered in constant evolution. In delivering an opinion of value for mortgage lending purposes the approach of professional academician and real estate analyst need to be able to respond to change of external conditions, in consideration of the sustainability of the cash flows in the long term, for the entire duration of the loan (and therefore for the purpose of identifying the long-term sustainable value of the asset). The approach is functional, inter alia, for the purpose of identifying the “prudential value” as defined by the innovative banking regulation (Basel 3) according to the definition of loan-to-value (LTV) ratio for loan origination and monitoring.


La scuola estimativa italiana, gli International Valuation Standard (IVS) e il Codice delle valutazioni immobiliari: i problemi di natura metodologica e applicativa

Leonardo Casini, Enrico Marone*, Gabriele Scozzafava

Department of Agriculture, Food, Environment and Forestry (DAGRI), University of Florence, Italy

Accepted: 2024-01-05 | Published Online: 2024-01-19

DOI: 10.36253/aestim-15327

ABSTRACT

In some Anglo-Saxon countries (Australia and the United States in particular), initiatives have already been developed for the promotion of common evaluation standards, while in Italy, this process has not yet been consolidated. The International Valuation Standards Committee (IVSC) has formulated various documents since 1994 to identify homogeneous evaluation practices at a global level. The International Valuation Standards (IVS) are also establishing themselves in Italy, and through the activities of ABI, Tecnoborsa, the Revenue Agency and competent professional associations, they have been implemented in the evaluation practices for granting credit and for the needs of the Public Administration.
The theoretical methodological principles contained in the IVS represent a valid evolution of the appraisal and are perfectly comparable to those of the Italian appraisal school; but their implementation is not always simple and still requires clear operational guidelines. The Real Estate Valuation Code published by Tecnoborsa is undoubtedly the first operational tool in this direction.Adapting the evaluation standards developed in the Italian regulatory context with international ones is a complex operation but useful for the needs of professionals. Our work arises from the need to develop a critical analysis of what is proposed in the Code and, after having analyzed the points of contact between the theoretical methodological apparatus of the Italian estimative school and that of the IVS, it aims to highlight possible improvements both in the use of univocal terminology and in the choice, illustration and verification of the scientific accuracy of the procedures and estimation models proposed.


From appraisal function to Automatic Valuation Method (AVM). The contribution of International Valuation Standards in modern appraisal methodologies

Francesca Salvo

Department of Environmental Engineering (DIAM), University of Calabria, Italy

Accepted: 2024-01-06 | Published Online: 2024-01-17

DOI: 10.36253/aestim-14730

ABSTRACT

In the real estate appraisal, as well as for any other scientific discipline, there is a continuous development of knowledge with related theoretical and applicative evolution that takes place primarily on the doctrinal level. The discipline has been object of regulatory and technological improvement aimed at concretizing and defining theoretical principles and methodologies. The functions of value appraisal, formulated in the different procedures that fall within the Market Oriented Approach indicated by the International Valuation Standard, have undergone a process of evolution that has favoured the introduction of Automated Valuation Methods (AVM). This evolution process represents an improvement of the conventional appraisal models that have improved the techniques of data retrieval and data base access and certify the reliability of the models to build efficient evaluation processes and universally recognized. This article aims at reviewing the methodological evolution in relation to the national market approach that the estimation discipline has recorded in recent years by virtue of the drafting and adoption of the International Valuation Standards.


Exploring farmland price determinants in Northern Italy using a spatial regression analysis

Laura Giuffrida1, Maria De Salvo2,*, Andrea Manarin3, Damiano Vettoretto3, Tiziano Tempesta3

1Department of Agriculture, Food and Environment, University of Catania, Italy

2Department of Veterinary Sciences, University of Messina, Italy

3Department of Land, Environment, Agriculture and Forestry. University of Padova, Italy

Accepted: 2023-12-07 | Published Online: 2024-01-10

DOI: 10.36253/aestim-14986

ABSTRACT

Using spatial regression models, we detect determinants of farmland’s prices in a rural area located in the upper Treviso plain (Veneto region, Italy).  Econometric analysis is based on a Spatial linear regression model able to account for spatial lags in the data. Estimates show which intrinsic and extrinsic characteristics have the greatest influence on price, and how buyers and sellers’ profiles also matter on the price determination. Our application fosters spatial regression models in rural real estate market analysis and appraisal, and highlights that in the area under study the farmland’s prices are significantly affected by factors that are rarely considered in the literature, such as sellers and buyers’ profiles, the land use in the context where the sold plot is located matters, the hydraulic risk of the area and the presence of large infrastructures.


The Mortgage Lending Value (MLV): proposal for a new calculation procedure

Antonio Benvenuti1, Francesca Salvo2, Daniela Tavano2,*

1University of the Republic of San Marino

2Department of Environmental Engineering (DIAm), University of Calabria, Italy

Accepted: 2023-10-10 | Published Online: 2023-10-19

DOI: 10.36253/aestim-14725

ABSTRACT

The mortgage lending value (MLV) is a type of value different from the market value (MV). The MLV appraisal is normally required in loans secured by real estate (collateral) context. In Italy, this appraisal is often made in percentage terms or with subjective criteria that do not consider the reference principles also defined by the valuation standards. This paper, starting from the analysis of the German procedure to appraise the MLV, which is the first country to introduce the concept of a security value in the context of property valuations, aims to propose a more precise procedure than the German one by adopting calculation methodologies typical of the income approach which are based on the principles derived from the definition of mortgage lending value and from market trends. The case is made that the proposed methodology and calculation procedure provide a more objective method to appraise the MLV compared to the current ones, in accordance with both national and international valuation standards, and that it represents a useful tool for professionals called to perform the calculations.


Analysis of the initial steps of the Market Comparison Approach (MCA) for its application to agricultural land: parameters of the market segment and real estate data

Martina Agosta*, Emanuele Schimmenti, Caterina Patrizia Di Franco, Antonio Asciuto

Department of Agricultural, Food and Forest Sciences, University of Palermo, Italy

Accepted: 2023-10-10 | Published Online: 2023-10-19

DOI: 10.36253/aestim-14497

ABSTRACT

In the current Italian real estate market, estimates of the market value of rural properties are carried out by appraisers mainly using the single-parameter comparison procedure and, less frequently, the income capitalization method. To overcome problems of appraiser subjectivity and other issues related to these methods, and to gradually comply with real estate appraisal standards, this research paper aims to develop and validate a scientifically rigorous method. This article carries out a first attempt to apply the mixed approach based on the integration of Market Comparison Approach (MCA) and General Assessment System (GAS) to agricultural land, currently used only in the field of urban real estate appraisal.

The study focuses on the first steps of this valuation procedure:  choice of the parameters which characterise the market segment and identification of the land characteristics to be included in the procedure. These two steps are preparatory to the following phase concerning the estimate of marginal prices, which represent the core of the whole valuation procedure.