- changes in technology;
Over time, the relative value of buildings and structures decreases for a number of reasons:
- wear and tear of structures during operation;
- adverse environmental impacts;
- changes in technology;
- influence of various external factors.
Before considering the methods for calculating various types of depreciation and obsolescence characteristic of real estate, you should familiarize yourself in more detail with the basic concepts and their properties.
The concept of "wear and tear" has different content in various industries knowledge and activities. There are significant differences in the meaning of the term “depreciation” by professional appraisers and accounting specialists. In the context accounting Depreciation (like depreciation) is a means of recovering cost over the life of the property. Obviously, calculating depreciation is not an assessment procedure. A practicing appraiser is not interested in asset accounting (in the same way that an accountant is interested); he is trying to substantiate a conclusion about a particular value of the object being appraised. The appraiser's goal, when it comes to depreciation in an assessment, is to determine the value of a specific property on a specific date within the framework of the cost approach, considering depreciation (estimated) as the difference between the values of restoration (replacement) and market value improvements.
On the other hand, in the methodological literature on assessment there are definitions of wear from the technical and operational sphere of real estate objects or used in mechanical engineering technology (For example, in one of the well-known textbooks on the assessment of machinery and equipment there is the following definition: “Physical wear and tear of machinery and equipment is called a change in size , shape, mass or condition of surfaces due to wear due to constant loads or due to destruction of the surface layer during friction... The amount of wear is characterized by established units of length, volume, mass, etc. "Here, the definition of wear as a "change in size" is the definition is technological, mechanical engineering, but not evaluative), that is, not evaluative.
Nobody argues that special knowledge is useful, but it is additional, not determinative, and cannot serve as a definition of this concept within the framework of a specific discipline - valuation theory and the valuation profession associated with economic measurements.
Since value is created by utility, a decrease in the value of improvements to the valued object during operation and under the influence of various other factors of obsolescence is a consequence of depreciation, i.e. loss of its value (usefulness).
Depreciation (estimated), or impairment, is the actual loss in the value of improvements to the property as a result of the influence of a number of factors (increasing age, degree of intensity of operation, emergence of new building materials and new developments in the design of buildings (structures), legal restrictions etc.), having different sources of origin.
Accumulated depreciation is characterized by the loss of value of improvements from all possible causes.
Classic valuation theory distinguishes three types of impairment:
- physical deterioration;
- functional obsolescence;
- external (economic) obsolescence.
Physical wear and tear (deterioration)- loss of value of improvements associated with partial or complete loss of building elements’ original serviceability properties as a result of natural aging as a result of their operation and under the influence of natural forces, as well as design errors or violations of construction rules (Fig. 11.1).
This type of impairment occurs due to deterioration in the physical and technical condition(strength, rigidity, attractiveness, etc.) of individual structural elements or the entire building as a whole. A decrease in the cost of a building may also be associated with the quality of construction, building materials used, operating conditions of the facility, climatic conditions, regularity of routine repairs, etc. Typically the market believes that a new building is better than an old one.
Functional obsolescence) - loss of value of improvements due to non-compliance of their functional characteristics with market requirements on the valuation date.
This may be obsolescence of a structural or space-planning solution, building materials and engineering equipment of a building (structure), lack of modernity of infrastructure and interior, inconsistency of the quality of construction work performed with modern market standards required for this type of building (structure), the presence of excesses, etc. Functional obsolescence can apply to both long-lived and short-lived structural elements.
Curve reflecting the accumulation process physical wear and tear
I is the period of intensive accumulation of wear associated with the start of operation of the object, the running-in period;
II - stabilization period, a period of normal operation and slow wear, during which irreversible deformations accumulate;
III - a period of intensive accumulation of fatigue (technically irreparable) deformations, and when the amount of wear reaches a critical value (80%), the question arises of the need to dismantle the building
The magnitude of functional obsolescence characterizes the degree of functional discrepancy between its individual elements or the entire building as a whole and the main parameters of its operational qualities, which determine the living conditions of people, the volume and quality of services provided, and modern market requirements.
External (economic) obsolescence (external obsolescence)- loss of value due to the negative impact of factors external to the object being valued.
These factors can be of various types:
- physical (next to residential area there is an airport, highway, factory, etc.);
- economic (there may be a change in the ratio of supply and demand, prices for raw materials and (or) energy resources, the level of competition, external economic situation, impact of macroeconomic, sectoral, regional economic factors that have a negative impact);
- political (legislative restrictions and changes in political, financial and other conditions on real estate market).
This type of obsolescence is inherent in improvements due to their fixed position and, unlike physical wear and tear and functional obsolescence, does not manifest itself in the object itself. It is associated with an unfavorable change in the external economic environment of the object (aging environment). Therefore, external obsolescence is considered in relation to the object as a whole and applies both to the land plot and to improvements in certain proportions. At the same time, external wear and tear is often measured by the capitalized value of rental losses, assessed using the gross rental multiplier.
The fact that the sources are separated (do not overlap) and cover the full range of values of possible causes allows us to assert that in the theory of assessment a system of wear and tear and obsolescence has been introduced that does not allow double counting, in contrast to a certain “set” of types of wear and tear (obsolescence) that is flawed in this sense. , introduced into the ESO (see paragraph 3.3.3 of the textbook). For example, physical depreciation is defined as the loss in value resulting from the consumption of assets through their use. Here, sources are considered in the immediate environment, which determines the quality of operation of the object being assessed. Functional obsolescence is associated with changes in the industry producing the object being assessed, and external obsolescence, as the name implies, is determined by changes in the macroeconomic conditions of the object’s functioning.
Almost all types of wear and tear can be observed on newly constructed buildings, even those that meet the most efficient use land plot. This is due to the fact that during construction work certain miscalculations and deviations from the original project may be made. In addition, due to the length of the design period and long construction periods, even the most modern projects by the time the facility is put into operation, they may have a functional discrepancy.
Accrued depreciation- loss of value due to all impairment factors
Impairment system in real estate valuation
An impairment may be reversible or irreversible.
Reversible impairment is wear and tear or obsolescence, the elimination of the causes of which is technically feasible and economically justifiable (expedient).
An action is considered economically justified if the increase in the value of the object being assessed after the elimination of the cause is not less than the cost of its implementation.
Unreversible impairment- wear and tear, or obsolescence, for which the elimination of the causes that cause it cannot be physically or technically implemented or the elimination of which is not economically justified.
Physical deterioration and functional obsolescence may or may not be remediable at the assessment date.
External (economic) wear and tear in real estate valuation is always considered unavoidable. It is directly related to the location of the object being assessed. The reasons that cause it are external to the property and cannot be eliminated by the owner of the property being valued.
The depreciation of buildings is directly related to their age and service life of both the entire building and its individual structural elements. Theoretically, over the course of its useful life, a building or its component should lose all of its value, so when calculating impairment, the age and useful life achieved at the measurement date are used to calculate the total depreciation of the building or its constituent components. In this case, the appraiser must have an idea of the life cycle of the property.
Since real estate objects are subject to physical, economic and legal changes throughout the entire period of their existence, each immovable thing (except land) goes through the following enlarged stages of its life cycle:
- formation - construction, creation of a new enterprise, acquisition (purchase, allocation, etc.) of a land plot;
- operation - operation and development (expansion, reconstruction, reorganization, etc.);
- cessation of existence - demolition, liquidation, natural destruction.
At the same time, during the life cycle of real estate as a physical object, there is a change, possibly multiple times, of the owner, possessor or user of this object real estate as an object of law.
Life cycle of a property is subject to certain patterns and includes, according to the definition of G. Harrison (Harrison G. Real Estate Valuation: translation from English M.: ROO, 1994), such concepts as the period of physical life, period economic life, length of remaining economic life, and chronological and effective age.
When calculating accumulated depreciation (cumulative impairment), appraisers use the following concepts.
Standard service life (Tm)- definite regulations service life of buildings and structures subject to compliance with the rules and terms of maintenance and repair.
The standard service life of buildings and structures (their structural elements) is established (calculated) taking into account the implementation of measures for their technical operation (including repair and construction activities). This is the estimated period of time during which the object and its structural elements, depending on the type of material of the main structures (foundations, walls and ceilings), can be used for their intended purpose, taking into account current and major repairs periodically carried out in it. Depending on the durability, which determines the capital group of buildings (structures) and their main structural elements, regulatory period service life can range from 10 to 175 years.
The physical life of improvements (G) (actual life) is the period from the completion of construction of improvements to their demolition. This is the period of time during which a building exists. Not taken into account economic expediency or inappropriate use. The physical life span can be normative, actual, calculated (predicted) and increased due to modernization and improvement of conditions.
Economic life of the object (Gk) (effective life)- the period of time during which improvements to the land contribute to the value of the property; the time during which an object can be used for profit.
Depending on the durability (capacity group) of buildings (structures) and their structural elements, the economic life span can range from 5 to 50 years until the urgent need for major repairs arises.
The length of physical and economic life can be very different - usually the expected physical life exceeds the economic one. Maintenance and major repairs, as well as reconstruction, extend both physical and economic life.
Chronological age of improvement (T) (chronological or actual age)- the period that has passed from the date of commissioning of the facility to the date of assessment. This is the actual (according to the technical passport) age of the object.
The effective age is determined by visual inspection and is based on the experience and judgment of the expert or appraiser. It is determined by assessment appearance, technical condition, economic factors of operation and other reasons affecting) the cost of the object, takes into account consumer characteristics(commercial properties) of the object on the valuation date for its possible sale. Real age, to determine which the condition of the assessed object must be correlated with the actual age corresponding to the object, as if it were operated under typical conditions and normal intensity of use.
This is the estimated period of time during which the building will continue to generate profits for its owner, determined by the difference (Tz - Tef) (The often incorrect definition should be avoided: “the period of remaining economic life is the period from the date of assessment to the end of the economic life of the object" On the valuation date, the appraiser determines two indicators - the chronological age and the effective age of the building, and it is the latter that appears in the calculations). This period is typically used by the appraiser to estimate future earnings. Renovating and upgrading a property increases its remaining economic life.
Estimation of the remaining economic life of the object
Effective age of improvement (Ef) (effective age)- age, expertly determined as of the valuation date based on the physical condition and degree of usefulness of the object (based on economic factors affecting the value of the valued object).
The effective age may be less than the chronological age if the building was maintained at a high level or was reconstructed. Conversely, if a building has been poorly maintained, its effective age may be greater than its chronological age.
The effective age is determined by visual inspection and is based on the experience and judgment of the expert or appraiser. It is determined by assessing the appearance, technical condition, economic factors of operation and other reasons affecting the cost of the object, takes into account the consumer characteristics (marketable properties) of the object on the date of assessment for its possible sale. This is the real age, to determine which the condition of the assessed object must be correlated with the actual age corresponding to the object, as if it had been operated under typical conditions and normal intensity of operation.
Effective age can be determined based on chronological age, taking into account accumulated wear and tear and listed economic factors. It can be determined in the same way as the difference between the terms of the economic life and the remaining economic life of the object. Depending on how the building has been maintained, whether repairs, modernization or conversion work has been carried out or not, the effective age of the building may be greater or less than its chronological age.
The remaining economic life of the object (T) (the rest of effective life or remaining economic life)- this is the estimated period of time during which the building will continue to generate profits for its owner, determined by the difference (Tz - Tef) (The often incorrect definition should be avoided: “the period of remaining economic life is the period from the date of assessment to the end of the economic life of the object "On the valuation date, the appraiser determines two indicators - the chronological age and the effective age of the building, and it is the latter that appears in the calculations). This period is typically used by the appraiser to estimate future earnings. Repair and modernization of a facility increases the remaining economic life (Figure 11.3).
The life cycle of a specific commercial real estate object as property, from the point of view of one of its current owners, who makes his own subjective journey with the real estate object from purchase to sale or exchange, can be repeated many times, each time with a new owner, until the end of its economic or physical life object. For objects - historical monuments - the indicator of the physical lifespan is more important, and not the fact of a change of owner, owner and user.
All stages of the life cycle of a property and indicators of its age are interconnected, and when one of them changes, the others change accordingly. The location of real estate at one or another stage of the life cycle must be taken into account by the owner in order to implement adequate measures to ensure the preservation and increase of the profitability of the property.
Depreciation assumes that the effective age, expressed as a percentage, reflects the typical economic life span in the same way that the percentage of accumulated depreciation reflects the total cost of reproduction, that is
The economic life span (ELL) of a school without major renovation is 60 years.
The reserve includes those elements of the building and equipment whose service life is less than the predicted economic life of the building. Such elements include
Economic life 277
A) the lease term is shorter than the economic life of the assets
EZh - the economic life of the object
This method is quite simple and logical, but its significant drawback is the subjectivity of determining the effective age and economic life span.
Economic life
Remaining economic life
Economic life is the period of time during which an object (building) can be used to make a profit. During this period, improvements contribute to the value of the property. The economic life of a property ends when improvements made no longer contribute to its value due to general obsolescence of the property.
Lifetime method. The percentage of physical depreciation when applying this method is calculated as the ratio of the effective age to the economic life.
The use of the NPV criterion is considered the most correct measure of investment efficiency. At the same time, the use of absolute indicators when analyzing projects with different initial conditions (initial investments, economic life spans, etc.) can lead to difficulties in making management decisions.
This inequality reflects the fact that the economic life of fixed assets, especially their active part, should be shorter than their standard useful life, which is usually typical for successfully developing organizations. Thus, fixed assets must be written off and replaced with new ones before their expiration date. beneficial use, since new fixed assets are characterized by more high performance, environmental friendliness, lower repair costs, allow us to produce more competitive products. There are also no negative tax consequences (for VAT and income tax) when writing off a fixed asset before the end of its standard useful life. For organizations experiencing difficulties, on the contrary, it is typical that the economic life of fixed assets exceeds their standard useful life, which leads to the operation of fully depreciated fixed assets. This conclusion does not apply to real estate (buildings and structures), for which the economic life on average corresponds to accounting deadline beneficial use.
The criteria for recognizing a financial lease are, in particular, the lease term (if it constitutes the majority of the economic life (useful life) of the asset, despite
The economic life of a property is the period of time during which improvements contribute to the value of the site.
TS - typical economic life, years. In modified form the formula is as follows
Example 3. The valuation object has an economic life of 60 years (more advanced design and design features than in examples 1.2) chronological age - 20 years effective age - 12 years (modernization has been carried out and there is no negative
remaining economic life, level of operating expenses, reversion rates and loss ratios, risks, ratio of land and building values, date of sale, method of best and most effective use, financing conditions, level of quality of management. In addition, the location and decoration should not differ fundamentally
remaining economic life; Ry is the rate of return on investment. Example. Investment terms: term- 5 years; R - rate of return on investment 12%; the amount of capital invested in real estate is $10,000. Solution. Ring's method. The annual straight-line rate of return on capital will be 20%, since in 5 years 100% of the asset will be written off (100: 5 = 20). In this case, the capitalization ratio
remaining term physical life. Physical depreciation can be calculated both for individual elements of the building with the subsequent summation of the calculated impairments, and for the building as a whole. For approximate calculations of wear, it is possible to use a simplified formula: AND The use of this formula is also relevant when calculating percentage adjustments for wear in compared objects (method of comparative
remaining term its useful life- 48 years old. Office space requires $1,000 to immediately replace carpeting and various supplies. Due to poor operation, loading platforms have physical wear and tear 25% higher than normal; their usual common term useful life is 30 years old; it is necessary to spend $2500 to repair them. Evaluated remaining term useful life roofs, systems
remaining term beneficial use. Useful life of the object intangible asset determined based on deadline: validity of patent, certificate; restrictions on the use of the facility in accordance with the legislation of the Russian Federation and foreign countries; stipulated by the relevant agreements. If term useful use of an intangible asset cannot be determined, then
term This is primarily due to the fact that this country, in the post-war period, correctly oriented itself and began to purposefully pursue state policy aimed at accelerating scientific and technical progress. The data center is understood as a unified scientific and technical policy of the state as a system of targeted measures that ensure integrated development science and technology, the introduction of their results into the national economy. United
term the service life of fixed production assets (machinery and equipment) must exceed three years; small enterprises should not cease their activities within one year from the date of commissioning of the equipment for which up to 50% of its cost is written off as cost. When using benefits in the area accelerated depreciation small businesses have the opportunity in the first year
deadline services. The most characteristic single indicator, the value of which is indicated in the passport data for products, is the guaranteed operating time before the first repair (T). This is the most objective indicator, since it is unprofitable to arbitrarily overestimate it (the losses of the product manufacturer increase with guaranteed servicing of unreliable products) and arbitrarily underestimate
deadlines pregnancy; at the birth of a child; for the period of parental leave until the child reaches the age of 1.5 years; child benefit. The procedure for assigning and paying these benefits is established by the Government of the Russian Federation. According to the Development Strategy Russian Federation until 2010, prepared by the Center for Strategic Research, a transition to a subsidiary state is expected, which
terms and ways to achieve the intended goals. All forecasts can be divided into two large groups: basic and social economic. The basic ones include demographic forecasts, forecasts natural resources, scientific and technological progress, environmental, external economic, foreign policy, domestic policy, etc. Socio-economic include forecasts economic growth,
In world practice, three main approaches to assessing the value of real estate are used: cost, income and market, on the basis of which the different kinds value of the object - market, investment, replacement cost, replacement cost, etc. (see 5.1.). Real estate valuation methods—the specific ways in which valuation principles are applied—depend on the approach taken.
The real estate valuation process can be divided into six stages: determining the scope of valuation issues (the essence of the valuation), preliminary inspection of the valuation object and concluding a valuation agreement; assessment plan; collection and analysis of information; applying assessment-appropriate approaches; approval and, finally, a report on the result of assessing the value of the object.
Let's analyze the capabilities of each stage of the real estate valuation process.
1. Definition of the task and conclusion of an agreement for the assessment of the property. The customer, as a rule, sets a specific goal for the appraiser - to determine the value of the property, which he needs to make a decision. The interests of the customer may be different: purchase real estate as an investment, sell the property, lend part of their assets, get a loan, pledge property, etc. In each case, the appraiser needs to determine a special specific type of value (for example, determining the market value of a property, investment or collateral value, etc.) and the area of its use (sale, obtaining a loan, insurance, etc.). Utility, substitution and expectation are fundamental principles that help the evaluator understand the nature of the problems at hand.
When appraising a property, it is important to examine the property and determine the legal rights associated with it, since the buyer may only have a lease or limited rights to use the property, have only a certain interest in joint tenancy and partnership, the property may be encumbered with a mortgage, there may be legal restrictions, etc. When solving these problems, the appraiser, as a rule, proceeds from the evaluative principles of balance, change, economic size, and economic division. They allow the appraiser to determine which parts (shares) of real estate should be combined (divided) or in what sequence they should be sold, and all this should be done in the interests of the customer.
After this, the expected costs of money and time for collecting and confirming information are estimated. These estimates will depend on the amount of information the evaluator already has, the uniqueness or complexity of the problem being solved, and the expertise and experience of the evaluator. A situation may arise when it is necessary to conduct an independent examination of the property.
The appraisal of real estate is carried out on the basis of an agreement between the appraiser and the customer. Mandatory requirements for the contract include the need to indicate the type of assessment; type of value of the valuation object; the amount of payment for carrying out this work; as well as information about the educational institution that issued a document on education confirming the receipt of professional knowledge in the field of valuation activities; license issued by an authorized body in accordance with the legislation of the Russian Federation. An appraisal of a property cannot be carried out by an appraiser if he is the founder, owner, shareholder or official legal entity, or by the customer or individual who has a property interest in the object of assessment.
The cost of assessing a property depends on the complexity of the problem, the amount of expected expenses and the range of services provided. Payment can be in the form of lump sum payment, hourly rate, as a percentage of the final assessment of the value of the property.
A proposal on the terms of the contract serves to clarify the responsibilities of the appraiser and the customer and confirms that the appraiser correctly understood the essence of the problem facing the customer. Concluding an agreement to complete the task and the amount of payment helps to avoid misunderstandings in the future.
2. Evaluation plan. After the essence of the assessment is understood and determined, the appraiser determines possible ways to solve it. To this end, a research program is developed, which becomes the basis of the second stage, called the “evaluation plan” and includes sequential solutions to the following tasks:
A) Structuring the assessment of a real estate property is that the appraiser first studies general value factors at the regional level, then moves on to more specific value factors at the local and segment level, and finally concentrates his attention on specific factors affecting the value of the land plot being valued and located on it real estate objects.
b) Evaluation Plan involves collecting the necessary information, processing and identifying the specific segment of the real estate market to which the property being assessed belongs; determination of demand, possible competitors and possible buyers (users); analysis of the parameters of comparable objects, personal characteristics of possible users, market conditions for financing.
V) Specification of approaches to real estate valuation. Each situation has its own approaches that are adequate only to it. To correctly select approaches, it is necessary to determine the criteria for their adequacy to the relevant situation. It is clear that the assessment requirements government agencies may differ from the requirements of private owners. For example, during privatization real estate It is not economic, but social and political demands that come to the fore.
In accordance with real estate valuation standards, all three approaches are applied and in as a last resort– two, but it is necessary to justify the reason for the choice. The final assessment result is derived taking into account the significance of a particular approach in each specific case.
3. Collection and confirmation of information. The reliability of the evaluator's conclusions depends on the data he used in his work. If they are not accurate, it will be difficult to prepare a valid conclusion. Therefore, the evaluator must collect such information as to support his conclusions in the report or analysis.
In the professional practice of appraisers, a certain system in selection has developed necessary information. Its essence is that the collected data should:
– directly touch the assessed object and be sufficiently fresh, i.e. specific;
– be confirmed by a personal inspection of the property by an appraiser or knowledgeable persons (experts);
– be comparable with data on similar objects available on the market; this comparability is especially important when using financial indicators, in particular when calculating upcoming earnings;
– provide for the possibility of clarification if distortions or deviations from actual values were made during the process of collecting information;
- relate to professional experience appraiser.
Since redundant information rarely increases the credibility of a report, the data collected should not overload the evaluator's reports.
A qualified selection of the necessary information will allow the appraiser to apply the appropriate this case approach to real estate valuation.
4. Approaches to assessing the value of real estate. COST APPROACH involves assessing the cost of complete reproduction or the cost of complete replacement of the property being assessed, then subtracting the amount of physical, moral and economic depreciation and, finally, adding to the value thus obtained the market value of the land plot as undeveloped.
An important and complex element of the cost approach is the determination of wear and tear. It is known that Depreciation is the loss of usefulness and decrease in value of a property due to various reasons.
The cost approach involves performing the following mandatory operations:
1) determination of the market value of the land plot on which the property is located (by comparing it with the cost of similar plots or use methodological recommendations government agencies);
2) determination of replacement cost;
3) calculation of all types of depreciation of the valued real estate: physical, functional and external and determination of replacement cost with taking into account wear and tear, (the total depreciation of the property is subtracted from the costs of its reproduction or replacement);
4) calculation total cost property by adding to net worth replacing real estate value with the market value of a piece of land.
The first operation is an assessment of the market value of the land plot on which the property is located- represents the study of:
Ownership rights to land;
Physical characteristics of the land plot;
Data on the relationship of the land plot with the environment;
Economic factors characterizing the land plot being assessed.
Sources of this information may be city district land committees and bodies where transactions with land plots are registered, mortgage lending organizations, appraisal and real estate firms specializing in transactions with land plots (for example, the Progal real estate agency, etc.
There are five main methods for assessing the market value of land, based on three basic approaches:
Comparable sales method;
Method of correlation (transfer);
Ground rent capitalization method;
Residue technique method for land;
Land development method.
The comparable sales method involves collating and comparing data on similar vacant land plots sold for Lately, and making adjustments to sales prices.
Comparison of the assessed land plot with comparable plots is carried out according to the following elements:
Location ;
Sales time;
Physical characteristics;
Characteristics of income received from the land plot;
Conditions for financing a land purchase and sale transaction;
Terms of sale;
The method of correlation (transfer) is to analyze building sales located on a similar plot, and dividing the total sales price into two components - the price of the building and the price of the land plot.
In this case, the cost of the building and other structures located on this site is initially assessed, then it is subtracted from the total price of the property complex and thereby the value of the land plot is obtained, the result obtained is transferred to the object being valued.
The ground rent capitalization method represents the capitalization of income received through rental payments.
This method in Russian conditions it is almost impossible to use, since it is currently impossible to find comparable rental payments and capitalization rates due to the absence of a land rental market as such.
The residual technique method for land when estimating the value of a land plot is applicable in the absence of data on sales of vacant plots of land. Income is calculated based on the profit received taking into account the best and most efficient use of the land and the property built on it.
The method is based on the application of the principle of residual productivity of land.
The land plot development (development) method is used when it is necessary to determine the cost of a plot suitable for dividing into separate individual plots and involves the following sequence of actions:
Determination of the size and number of individual plots (when determining the size of individual plots, physical, legal and economic forces, influencing the adoption of this decision);
Calculation of the cost of developed plots using the comparable sales method;
Calculation of costs for the development of plots and their sale;
Determination of magnitude cash flow by subtracting the costs of developing plots from the total revenue from sales of these plots;
Discounting cash flow taking into account the time of development and sales of all individual land plots.
The discount rate used to discount cash flow should reflect the existing trends in investment efficiency that are emerging in a given market for developed land plots; these rates should be quite high due to the significant risks of development and sale of plots.
The second operation is to determine the gross replacement cost.
There are three main methods for determining the replacement cost (replacement cost) of a property.
1. Comparative unit method (or unit cost method), in which the adjusted cost of a unit of measurement is multiplied by the number of units of the property being valued.
Units of measurement can be square or cubic meters. 1st place, etc. This is the easiest way to evaluate a property.
2. METHOD OF DIVISION BY COMPONENTS, based on determining the components of real estate and multiplying them by aggregated cost indicators.
The components can be: foundation, walls and partitions, floors (coverings), roofing, floors, openings, Finishing work, engineering equipment, wages, etc. Aggregated indicators can be calculated for 1 m 3, 1 m 2, 1 linear meter, 1 standard hour, etc.
3. METHOD OF QUANTITATIVE SURVEY consists in compiling object and consolidated estimates construction of the assessed object, as if it were being built again.
This is the most labor-intensive method, but it can be significantly simplified if there are old estimates of the assessed object, according to which it was built, or an expert appraiser can resort to the services of a specialist estimator who will develop a new estimate for the assessed object using uniform norms and prices, indices prices for construction and installation works, SNiPs and other necessary documentation.
Usually indirect costs constitute 10–15 percent of the regional construction cost.
The third operation is to determine the wear and tear of the property.
In valuation activities, depreciation is considered as the main factor in the value of a property when applying the cost approach. Here, depreciation is used to account for differences in the characteristics of the new property and the property being appraised. Accounting for the depreciation of an object is a kind of adjustment to the cost of a newly reproduced building (determined using the cost approach) to determine the current value of the assessed object.
The concept of “wear and tear” used in valuation activities must be distinguished from the concept of “depreciation” used in accounting. Depreciation in accounting is the process of distributing the initial costs associated with the acquisition of an object over its entire service life, without determining its current value.
As you know, there are three types of wear and tear: physical, functional and external (economic).
Physical deterioration reflects a decrease in the performance of a property as a result of both natural physical aging and the influence of external unfavorable factors. Physical wear and tear is taken into account in the standards depreciation charges.
In practice, four main methods are used to calculate the physical deterioration of buildings: expert, cost, regulatory (or accounting) and method of calculating the life of a building.
It should be noted that physical wear and tear can be removable or irreparable.
Removable physical deterioration assumes that the cost of ongoing repairs is less than the added value of the object.
Physical deterioration is considered irreparable when the cost of correcting the defect exceeds the value it would add to the property. Any defect in an object can, in principle, be corrected, but the cost of correction should not exceed the expected benefit.
To determine irreparable physical wear and tear, building elements are divided into two categories: long-term and wear-out. The wear of long-term elements, such as foundations, walls, floors, etc., can be calculated in groups by determining their effective service life and the remaining physical life in real conditions.
To calculate the physical wear and tear of long-term elements, you can also use the method of determining the costs of reproduction of building elements (or the cost method).
In a more accurate adjusted cost method When calculating physical wear and tear, the percentage of wear and tear on building elements is determined as a weighted value.
The categories of rapidly wearing building elements include elements whose service life is shorter than the estimated economic life of the building. This includes roofing, decorative finishing, painting, etc., i.e. elements that can be repaired (restored) through routine maintenance.
Regulatory (or accounting) method determining the physical deterioration of buildings involves the use of the currently valid “Unified norms of depreciation charges for the complete restoration of fixed assets in the Russian Federation”, approved by Resolution of the Council of Ministers of the USSR of October 29, 1990 No. 1072.
The physical deterioration of a property can be determined method of calculating lifespan. Lifespan of a building or structure are presented in Fig. 5.1.
From point of view functional use The following lifespans of a real estate property are distinguished:
1. Economic life, defining the period of time during which the object can be used as a source of profit. The economic life ends when improvements made no longer contribute to the value of the property.
2. Lifetime, a period of time when an object exists and one can live or work in it.
3. Typical physical lifespan determined by the regulations of the current legislation.
From the point of view of the life period of a real estate property, the following periods are distinguished:
1. Effective age which reflects the age of an object depending on its appearance, technical condition, etc.
Rice. 5.1. Lifespan of a building or structure
2. Chronological (actual) age, corresponding to the period during which the facility is in operation from the moment of its commissioning.
3. Remaining economic life used for the purpose of assessing an object by an expert appraiser and constitutes the period from the date of assessment to the end of the economic life of the object.
The relationship between wear and tear, replacement cost, effective age, and typical physical life can be described by the following formula:
(5.1)
where I is the wear and tear of the property;
And restore is the replacement cost of the property;
EV – effective age;
TS ezh is a typical period of economic life.
In other words, the percentage of depreciation from replacement cost is determined by the ratio of the effective age of the property to the typical economic life.
Functional obsolescence (or functional wear and tear) of an object thing is the object does not meet modern standards in terms of its functional usefulness. This type of wear and tear (can manifest itself in the outdated architecture of the building, in the convenience of its layout, volume, engineering support, etc.) is mainly due to the influence scientific and technological progress in the field of architecture and construction. Functional wear and tear in domestic practice is called obsolescence and, just like physical wear and tear, it can be removable and irreparable.
Removable functional wear and tear includes the restoration of built-in cabinets, water and gas meters. Plumbing equipment, floor coverings, etc. The criterion for wear and tear, from the point of view of removability, is to compare the amount of repair costs with the amount of additional value received. If the additional value received exceeds the cost of restoration, then functional wear is removable. The amount of removable functional wear and tear is determined as the difference between the potential value of the building at the time of its assessment with updated elements and its value at the same assessment date without updated elements.
Irremovable functional wear and tear refers to a decrease in the value of a building due to factors associated with both excess and deficiency of the quality characteristics of the building. For example, in the rental market there is great demand two-room apartments compared to one-room apartments. The amount of this type of depreciation is calculated as the amount of losses from rent when renting out these apartments, multiplied by the rent multiplier (the ratio of the sale price of the property to the potential rent for it), characteristic of this type of apartment. Thus, the amount of irreparable functional wear and tear is determined by capitalizing rental losses.
Economic wear or wear from external influences – This is a decrease in the value of a building due to a negative change in its external environment caused by economic, political or other factors. The reasons for external wear and tear can be either the general decline of the area in which the object is located, or the actions of the government or local administration in the field of taxation, insurance; other changes in the employment, recreation, education, etc. markets.
A significant factor influencing the amount of external wear is the close proximity to “unattractive” natural or artificial objects - swamps, sewage treatment plants, restaurants, dance floors, gas stations, railway stations, hospitals, schools, industrial enterprises, etc.
Favorable and unfavorable environmental factors can affect the value of the property being appraised to a greater extent than similar, but not appraised, properties. This influence is directly reflected in the appraiser’s opinion about the value of the property and is recorded in the report. When an appraiser, during a site survey, identifies problems associated with the state of the environment, he must determine the nature and extent of pollution based on his own research or sanitary and environmental examination. The responsibilities of the appraiser also include recommendations for conducting a detailed examination if various types of contamination were discovered during the initial examination. In cases where environmental pollution problems have been identified or are expected to occur, the appraiser should recommend an environmental assessment prior to commencing the assessment process.
The object being assessed may not be significantly influenced by environmental pollution factors, although this influence may be quite strong on similar objects that are not currently being assessed. In cases where in any area all real estate objects are equally susceptible to environmental influences, it is not advisable to conduct additional analysis.
The decrease in value associated with environmental pollution is determined using methods similar to those for determining depreciation. For example, the cost of toxic waste disposal may be related to the cost of renovating the site, e.g. the cost of removable defects.
Economic wear and tear, in contrast to physical and moral wear and tear, is always considered irreversible, because the amount of costs allocated to eliminating external factors is disproportionately high.
A way to measure external wear and tear is to analyze paired sales (when two comparable objects are sold on the real estate market, one of which has signs of external wear, the other does not). The difference in prices allows us to draw a conclusion about the amount of wear and tear from the external influence of the object being evaluated.
Another way to measure external depreciation is to compare the rental income of two properties similar to the one being assessed, one of which is subject to negative impact. Capitalization of income losses from comparing these two objects will characterize the amount of wear and tear from external influences.
Fourth operation - adding land value to replacement cost. This operation is a pure mathematical operation and is based on adding the cost of land with the replacement cost, taking into account depreciation, to obtain the total value of the property.
INCOME POD. Its essence lies in the fact that it is associated with determining the value of future income from the use of a property. The technology for using the income valuation approach involves performing five operations.
First operation: determination of future gross income. Based on data from the annual balance sheets of income and expenses of the enterprise for the last 3 years, the appraiser determines gross income.
The definition of gross income includes:
1. Estimation of potential gross income, i.e. the income that the facility is capable of generating in a year, provided that the space is fully occupied before deducting operating costs. Thus, potential gross income represents the expected total amount from the main activity on the property being valued.
2. An estimate of actual gross income, calculated based on potential gross income. At the same time, losses during collection of payments are subtracted from it, and additional income from the property is added (for example, from entrepreneurial activity on or within the property).
If, for example, the cost of a hotel is estimated, then the owner’s income will consist of the following elements: rooms, restaurants, cleaning and laundry services, rent for installed kiosks and shops. The appraiser must take into account the development potential of the entrepreneur and reflect it in his report. The buyer should know that he can increase profits through better management, financial control, the involvement of new production facilities and other factors. These additional features income generation is usually taken into account by stakeholders in the process of assessing present value.
Second operation: subtracting transaction costs. The appraiser analyzes operating expenses that are reflected in the company's balance sheet. This type costs reflect the costs necessary to maintain the functional suitability of an object, which ensures receipt of gross income.
Operating costs are assumed to be:
Conditionally constant, which do not depend on the degree of exploitation of the property (for example, property tax, insurance premiums etc.);
Conditional variables that change depending on the degree of use and load of the property (for example, payment for public utilities, cleaning, garbage removal, etc.);
Replacement reserves – to replace, during the economic life of the property, its individual elements (structural, operational and interior), especially those that are most susceptible to wear and tear (for example, roofing, plumbing, elevator equipment).
For example, in the case of a hotel valuation, they include the cost of the hotel room, staff and administration fees, advertising, renovations and taxes. All expenses, except depreciation and loan costs, must be deducted from gross turnover to arrive at net income.
Third operation: definition and adjustment to net (operating) income. The adjustment to net income is determined by the individual characteristics of the entrepreneur.
Let's say 70 percent of the income will be spent on paying rent and other production expenses, then the entrepreneur can receive up to 30 percent of the gross income received in the form of remuneration. In the case of a high level of competition, this ratio may change due to a reduction in the entrepreneur's personal income.
It should be noted that net income does not take into account amounts for servicing loans and depreciation charges.
Fourth operation: goodwill valuation and multiplier. Goodwill is defined as “the benefits transferred by the seller of a business to the buyer; list of clients or customers recognized as separate element business value" (Oxford Dictionary in English). The International Accounting Standards Board believes that goodwill is “the difference between the value of a business as a whole and the market price of its assets”. Both definitions characterize the additional value obtained as a result of the individual characteristics of doing business and added to the value of the property being valued.
To determine the value of a potential owner's goodwill, the appraiser must:
· include the owner’s main assets – land and production elements, including machinery and equipment;
· exclude the value of the tenant's real estate (including equipment and equity) and the value of goodwill associated with the name of the previous owner (if any);
· at the customer’s request, separately indicate the cost of certain items related to real estate (furniture, tenant assets, etc.), if a comparative method of real estate valuation is used.
The appraiser multiplies the resulting value of goodwill associated with the property by a coefficient from 1 to 5. The choice of the coefficient depends on the appraiser’s opinion about the reliability of cash flows in the future and the prospects for growth (decline) of the business.
Fifth operation: determining the final value of real estate.
The following methods can be used:
1.
Income capitalization method (direct capitalization method).
2.
Discounted cash flow method.
3.
Remnant technique.
To understand the essence of methods for assessing income-producing real estate, it is necessary to consider the functions compound interest, which characterize quantitative changes in the value of money over time. These functions generally include:
1. Future value of a single investment – determines the value of the future value of a monetary unit after n periods at compound interest:
(5.2)
where i is the actual compound interest rate
2. Current value of a single investment– corresponds to the current value of the monetary unit, obtained after n periods at a given interest rate per annum:
(5.3)
3. Current value of a single investment for the period– determines the present value of a series of future equal unit payments over n periods at the compound interest rate i:
(5.4)
4. Future value of a single investment for the period – shows what future value a series of future equal unit payments over n periods at the compound interest rate i:
(5.5)
5. Depreciation factor for a single investment – shows what the size of payments should be over n periods so that their present value at interest rate i is equal to 1:
(5.6)
(5.7)
6. Compensation fund factor – calculates the amount of equal payments that would accumulate on the account by the end of the annuity term 1 monetary unit:
Direct capitalization method used if constant or smoothly changing income is forecast. This method is based on the determination of the capitalization rate, which is a capitalization ratio that takes into account both the net profit received from the operation of the property being valued and the reimbursement of capital spent on the acquisition of this property.
In general, the capitalization rate is defined as:
There are other methods for calculating the capitalization rate:
1. Direct matching method consists in comparing the evaluated object with an analogue object. In this case, it is assumed that similar properties have the same capitalization rates.
2. Linked Investment Method applies in the case of using both borrowed and equity.
a) capitalization rate for borrowed funds(mortgage constant) is determined by the ratio of annual debt service payments to the principal amount mortgage loan;
b) capitalization rate for own funds(equity capitalization rate) is determined by the ratio of the part net profit from the operation of the property attributable to equity capital to the amount of equity capital
The overall capitalization rate is determined by weighing its components in proportion to the size of debt and equity capital in total amount invested capital.
The component of borrowed capital is defined as the product of the mortgage constant and the ratio of the amount of borrowed capital to the total amount of invested capital. The equity component is defined as:
3. Ellwood method is a modified linked investment method that takes into account the length of the investment period and changes in the value of the property over time.
4. Cumulative method takes into account in the capitalization rate adjustments for risks associated with investment investments, ineffective investment management, low liquidity of funds and other methods for determining the capitalization rate
The direct capitalization method is based on the fact that income from the use of a property and proceeds from its resale are capitalized into the current value, which will represent the value of the property.
(5.10)
General formula to determine the value of a property using the direct capitalization method is as follows:
It should be noted that the value of a real estate object (A object), when using the direct capitalization method, can also be identified with the cost of rent for a number of years of operation of the real estate object. In this case, the method of determining the value of the property is called the “direct capitalization of annual rent method.”
Capitalization of the annual rent depends on the individual assessment and risk of rent collection.
, (5.11)
where A object is the cost of the object;
BH – net income;
Г – number of years of lease of the object;
With cap. – rent capitalization coefficient, calculated as the ratio of the amount of net income (NI) to the amount of annual rent (A ar.pl.).
Discounted Cash Flow Method applies in the case of randomly changing and unevenly received cash flows depending on the degree of risk associated with the use of the property.
Using this method assumes:
1. Establishing the duration of receipt of income from the property.
In international valuation practice, it is customary to take the average duration, unless otherwise provided additional conditions, equal to 5 – 10 years. Among Russian appraisers, the practice has developed to evaluate this period in the range of 3–5 years.
2. Forecasting the amount of cash flows:
Building trends in cash flows of income and expenses;
Frequency of income.
If expenses for reconstruction or modernization of a property are envisaged, then their amount is deducted from net income in the periods in which they occur.
3. Determination of the discount rate.
The discount rate denotes the compound interest used in calculating the present value of future payments.
There are various methods for determining the discount rate:
Construction method;
Method for comparing alternative investments;
Selection method;
Monitoring method.
Construction method is based on the premise that the discount rate is only a function of risk and can be defined as the sum of all risks associated with the acquisition, operation of real estate and other operations (real estate market risk, capital market risk, low liquidity risk, inflation risk, property management risk, financial risk, environmental risk, legislative risk).
At the core method for comparing alternative investments lies the provision that projects with similar risks should have similar discount rates.
Selection method assumes that the discount rate is calculated based on data on completed transactions.
Monitoring method allows you to identify trends in the profitability of alternative investments that are related to the profitability of the property. Such an analysis allows us to make an assumption regarding the likely forecast of changes in the profitability of a property based on monitoring of the real estate market, the results of which are officially published.
4. Discounting of cash flows, which is carried out by bringing the value of cash flows from future periods based on the functions of compound interest and summing up all current values.
The calculation process involves discounting each cash flow with its corresponding discount rate and then adding all the resulting values:
(5.12)
where С t – cash flow of period t; i t – discount rate for cash flow of period t
5. Calculation of proceeds from the sale of a real estate object (reversion) at the end of the period of ownership and bringing it to the current value through the discount rate.
6. Addition of the current values of income streams and proceeds from sales.
7. Calculation of the value of a property as the difference between the current amount of income for the billing period and the amount of borrowed funds.
Residue technique involves the capitalization of income that relates only to one of the components of the funds invested in the property, while the value of the other components is known. Those. such an assessment is made taking into account the influence of individual factors of income generation.
Calculation of the value of a property is carried out in the following sequence:
1. The part of income for a certain period that is necessary to attract investment in a component with a known cost is determined by multiplying the capitalization rate by the value.
2. The amount of income that falls on the second component (unknown) is determined by subtracting the income that falls on the first component from the total income.
3. The value of the second component is determined by dividing the income attributable to it by the corresponding capitalization rate.
4. The value of the property is determined by adding the value of the known component and the calculated value of the unknown component.
MARKET APPROACH is based on an analysis of market sales and is the basis for most real estate appraisals in a market economy. It is based on market information that is easily accessible to the appraiser and allows for a simple, logical judgment about the price of an object.
The process of using this method is quite simple: a real estate object is selected that is similar to the object being evaluated, which already has a known market price; then, after comparing their technical and economic parameters, the differences are recorded and appropriate adjustments are made in cost form, and the base cost is determined.
Application technology comparative method when assessing the value of real estate, includes five operations:
First operation: collection of comparative data.
The appraiser collects as much information as possible about the sale of similar properties. Sources of information may include: owner registration, information from colleagues, official records and statistics. When collecting information, the appraiser must be confident in its completeness and objectivity. IN mandatory information about the cost of 1 sq. m. must be present. meters of area of the object, date of transaction, location of the object, terms of the transaction and other indicators that the appraiser deems necessary.
Second operation: study of transactions.
The appraiser must be sure that the transaction took place between two independent parties and the price paid was not influenced by any factors, including close relationships between the parties. In addition, the appraiser must examine the terms under which agreements were reached on the amount of sale of the property or rent, and compare these values with market information on this matter. The rent for a new building, for example, in the real estate market can be good indicator, but a transaction between obligated partners or relatives is not.
Third operation: temporary adjustments. Very often, the appraiser has information about transactions that occurred several years ago. In an economy with high level inflation, you need to know the exact date of the transaction in order to make mathematical or qualitative corrections when analyzing the data.
Fourth operation: adjustment of differences between comparable properties.
In real practice, it is difficult to find absolutely similar real estate properties in terms of size, location, age, design, layout, and other parameters. In this situation, the appraiser must approach the problem from the point of view that any information is better than no information. Based on its nature and on the basis own experience, the appraiser determines the differences between the compared real estate objects and expresses them in cost form. The appraiser finds these differences in the location of objects, the degree of their wear, and determines differences in many other factors.
Fifth operation: making a decision on the value of real estate.
The issue of comparability of data between two compared real estate objects requires special consideration, since, despite the similarity of various parameters of the property being valued and market analogues, it is possible to come to an incorrect conclusion about the value. The size of the property being valued, its age and other factors, the appraiser must compare with similar factors of similar properties and make adjustments to in value terms and take into account in further analysis.
The approaches to real estate valuation described above (cost, income, market) are based on information collected in the same real estate market, but each deals with a different side of this market and can differ significantly from each other. Therefore, the final conclusion is made based on the totality of their results, which, as a rule, should be close. Significant discrepancies indicate either errors in estimates or an imbalance in the real estate market.
5. Coordination of results obtained using different approaches. Reconciliation is a process in which judgment and logic are applied to arrive at a final estimate of the value of a property based on the results obtained through various valuation methods.
This process includes preliminary and final stages.
During the preliminary stage, the appraiser:
– checks the possibility of using the principles of real estate valuation using market, cost and income approaches;
– analyzes from a common sense perspective various amounts of real estate value obtained as a result of applying market, cost and income approaches in assessing the value of real estate;
– ranks the significance of estimates obtained by different methods, depending on the conditions of application of the methods and the specific object;
– checks the reality of primary information.
At the final stage, the appraiser returns to the original problem, uses statistical analysis to develop probable values for the value of the object, and determines its expected maximum values. Then, taking into account his experience and knowledge, he presents the customer with a single estimate of the value of the property.
It should be emphasized once again that reconciliation is not a mechanical averaging of results obtained using market, cost and income approaches, but a process of logical reasoning, conclusions and decisions.
6. Report on the result of the valuation. As a final step, the appraiser writes a report on his findings and conclusions, which he then submits to the client (Appendix 14). Depending on the terms of the contract, this report may be a simple letter drawn up on a standard form or a detailed written report and must not be ambiguous or misleading.
A real estate valuation report is prepared taking into account a thorough analysis of market data and, especially, in cases where environmental pollution occurs.
Thus, a systematic approach to assessing the value of various types of real estate includes three main approaches (market, cost and income), each of which uses a unified set of valuation principles.
St. Petersburg is characterized by obsolescence of buildings, for example, narrow staircases that do not meet modern standards, low ceilings. In cases of significant or physical deterioration, building restoration and repairs may be proposed.
The minimum price for a comprehensive survey of a building is 15–20 thousand rubles.
In countries with market economy when valuing commercial real estate, the cost of land is usually 15–30% of the total cost, the average figure is approximately 20%. Despite the fact that this average value is quite approximate, it can be used to evaluate land in our country.
It is necessary to take into account that prices for land plots published in periodicals are, as a rule, so-called seller prices (i.e. inflated prices), while actual transaction prices are needed for comparison and comparison) they are usually 8 – 12% lower than published.
The price of a land plot is somewhat influenced by the degree of distance from St. Petersburg. For example, in the 30-kilometer zone of St. Petersburg, prices are higher than in the remote zone.
In Russian conditions, there is an annual trend of increasing prices for land plots; significant seasonal fluctuations in prices have been registered: in the spring, prices increase, in the winter they fall. Seasonal fluctuations in some areas of the Leningrad region reach 10–15%.
Often the size of land plots is determined based on economic opportunities potential investors. The sizes of individual land plots usually range from 6 to 30 acres. Land plots measuring 15 acres are in greatest demand on the market.
Developed land plots are those to which underground utilities, roads, electricity, gas have been installed, as well as on which buildings have been built. residential buildings for individual projects.
The costs of developing and selling land include the costs of clearing, planning and marking the site, building access roads, engineering communications, electricity and gas supply, as well as overhead costs for maintaining management personnel, security, etc.
The percentage of physical wear and tear, for example, of a residential property, assessed by an expert method, is determined on the basis of the “Rules for the physical wear and tear of residential buildings VSN-53-86” of the State Civil Engineering Committee.
In Russian terminology - standard service life.
Harrison G. Real estate assessment. M., 1994.
The reconciliation process is sometimes called the “examination of conscience.”
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The life cycle is a complete sequence of processes in the existence of real estate from commissioning to termination. In theory and practice, four types of cycles are distinguished: business, life cycle of a product, type of business and enterprise as a property complex. The cycle duration is influenced by production periods, physical and moral wear and tear, capital capital of the facility, operating conditions, market conditions and other factors. For real estate valuation, it is of interest to consider 2 life cycles of real estate:
1. Life cycle of real estate as a physical object.
2. The life cycle of real estate as a property.
The life cycle of real estate (product) as a physical object consists of 11 stages:
1. Pre-investment stage (analysis of opportunities, justification).
2. Creation, formation (design, construction).
3. Commissioning.
4. Possession and use.
5. Functional, economic obsolescence.
6. Physical wear and tear.
7. Major renovation or reconstruction.
8. Deterioration of consumer properties.
9. Change of functional purpose.
10. End of economic life.
11. Cessation of existence (natural destruction, demolition).
At stages 3 and 11 of the real estate life cycle, a procedure for state registration of rights is required.
The life cycle of real estate as a property can be divided into 10 stages:
1. Acquisition (purchase, construction, inheritance).
2. Possession and use for a certain period.
3. Facility management.
4. Making profit, satisfying needs.
5. Disposal of property and property rights to the object.
6. Multiple changes of owners, owners, users.
7. Changing the functional purpose of the object.
8. Termination of property rights (sale, nationalization, requisition).
9. The end of the economic life of the object.
10. Repeating the previous cycle or building a new, modified one.
At stages 1, 6 and 8 of the real estate life cycle, a procedure for state registration of rights is required.
In the course of their existence, real estate objects are subject to physical, legal and economic changes. As a result, each immovable thing (except land) goes through the following enlarged stages of its life cycle:
Formation – construction, creation of a new enterprise, acquisition (purchase, allocation, etc.) of a land plot;
Operation - operation and development (expansion, reconstruction, change of activity, reorganization, etc.)
Change (possibly multiple times) of owner, owner or user;
Cessation of existence - demolition, liquidation, natural destruction.
The first, third and fourth stages provide for state registration of the fact of creation or liquidation of an object, as well as a change of owner.
The life cycle of real estate follows certain patterns and includes economic, physical, chronological and remaining economic life.
Economic lifespan is a period of profitable use of the property, when improvements made contribute to the value of the property. Good repairs, refurbishment and optimization of conditions increase, but poor maintenance shortens the economic life of the property. It ends when improvements no longer contribute to the value of the property due to its general obsolescence.
Physical lifespan– this is the period of real existence of an object in a functionally suitable state before its demolition (destruction). It can be normative, actual, calculated (predicted) and increase due to modernization and improvement of conditions.
Effective age based on an assessment of the appearance and technical condition of the building. This is the age corresponding to the actual preservation of the object, its condition at the time of the transaction, evaluation. Effective age may be greater or less than chronological age.
Chronological age– this is the period from the day the object was put into operation until the date of the transaction or valuation.
Remaining economic life of a building is calculated from the date of assessment (analysis) until the end of its economic life. Repairs and refurbishments extend this period.
The physical and economic lifespan of buildings are objective in nature, which can be regulated, but cannot be canceled. All stages of the life cycle and life span are interconnected, and when one of them changes, the others change accordingly.