Public patrimony the Estimation of the Fair Values Associated to Real Estate Components

AuthorAnton Petrişor Parlagi
PositionAssociate Professor, Ph.D., Social and Administrative Sciences Faculty, “Nicolae Titulescu” University
Pages474-479

Page 474

Introduction

This paper covers the topic of public property (real estate) valuation. It proposes the use of technical-economic parameters for adjusting the fair value, with applicability only for public patrimony evaluation.

This type of valuation is necessary because there are no real market transactions, but just transactions between two governmental institutions. Such transactions must be less affected by short-term fluctuations of real estate market.

To solve this aspect, the author proposes the use of parameters for adjusting the valuation based on net replacement cost. By this proposal the author enforces the aspect of social (public utility) in real estate valuation.

Thus it develops concepts and architectures for the implementation of a more accurate public property valuation. In this context the analysis is based on market criteria of characteristics and available data, quantification for adjustment following the comparison elements: Property Rights, Financing Correction, Selling Conditions, Market Conditions, Localization, Physical Characteristics, Economic Characteristics, Use, Non-real estate Components of Value.

This aspect is quite ignored in the valuation methodology of public property. The market value methodology, applied for private transactions, cannot be applied on public domain transactions without considering the social impact/aspects of the transaction.

The paper proposes valuation scenarios and prototypes available for national use in all governmental (central or local) institutions.

Page 475

Literature review

The valuation methodology is described in the following normative and regulation acts:

- International Financial Reporting Standards (IFRS);

- International Accounting Standards (IAS);

- International Valuation Standards (IVS).

We took into account the recommendations of:

- International Standard of Application in Valuation IVA 1 - "Valuation for financial reporting”;

- International Standard of Practice in Valuation GN 1 - "Valuation of real estate" (revised in 2007).

IVSC says that a qualified evaluator must report the market value of the asset when he makes a valuation for the purpose of financial reporting. Any hypotheses or opinions expressed in the application of the market value must be discussed with the representatives of the entity and presented in the report.

Valuations according to IAS: “When an entity adopts the option of revaluation based on fair value, according to IAS, the assets are included in the balance sheet at their fair value as follows: “The fair value of the lands and buildings is generally determined by the market data, by a valuation made by professional evaluator qualified in valuation. The fair value of the elements of tangible assets is generally their market value determined by valuation” (1).

Also, “If there is no market data regarding the fair value because of the specialized nature of the element of fixed assets, and the element sells rarely, except for the case when it represents a part of a continuous activity, an entity may need to estimate the fair value by using an income-based approach or the net replacement cost (2).

Definitions of the International Valuation Standards: “Market value. The estimated amount for which a property can be exchanged at valuation date between a determined buyer and a determined seller, in a transaction with a price that is objectively established, after an appropriate marketing activity in which the parties acted in full knowledge, prudently and without constraint” (3).

International Financial Reporting Standards adopted two models for the recognition of assets in the balance sheet:

- a model based on cost;

- a model based on fair value.

Where the model based on fair value applies, it is necessary to make a current revaluation of the asset and this Standard applies to those specific cases where market values are to be reported.

The delimitation of these categories was done by individualizing each capital asset and placing it in one of the existing situations.

Theoretical background
A Generalities

The assets submitted to valuation:

- Are real estates in public property;

- Their market value can be estimated.

B Crossed stages

For the estimation of the assets there are necessary the following stages:

Page 476

  1. Documentation, based on a list of information requested to the customer (the governmental institution) - list of capital assets at valuation date.

  2. Discussions with...

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