TRAINING OF VALUERS FOR SPECIALIZED

PROPERTIES

Ana Maria Grămescu, Professor, D.Sc, Dipl.Eng.

Technical University Ovidius, Constanţa,
Faculty of Engineering
Member of ANEVAR Romania;
Drd. Ec. Daniela Barbu – CMF Consulting Bucharest
Consultant, expert appraiser
Member of ANEVAR Romania

The estimation of assets is based on both traditional political economy

and modern political economy as well.
Estimate principles and techniques had been decided upon prior to
1940 but estimate as a profession has developed after 1940. Changes
developed quickly in the economic and business field locally and externally
had an impact over the significance of the professionals within the market.
In the last years, more and more objective, skilled, professional estimates
have been requested in Romania covering a significant range of activities,
businesses.
In this respect, it is mentioned that the profession of valuer is still
developing in Romania. After 1992, country’s economy was in the transition
to the market economy, changes of ownership have required a higher
amount of information over intangibles and real estates. Thus, a range of real
estates have been created which already has a stock exchange based on
transaction of similar assets. These assets are appraised at the market value.
This approach is used for other assets, too. Market value is for the existing
use, value of alternative use.

The valuation methodology for real estate properties

There are various methods available for real estate valuation and the
choice of them depends on the purpose of the valuation and / or of the nature
of the properties to be valued as well as the information available to the
valuer. Whenever appropriate, more than one method must be employed to
arrive at the valuer conclusion about the property values.
Sales comparison approach is adopted for properties which are
commonly transacted in the market, and therefore market data and
transaction records of them are readily available for comparison. Open
Market Value is intended to mean “the estimated amount for which a
property should exchange at the valuation date between a willing buyer and
a willing seller in an arm’s length transaction after a proper marketing
wherein the parties had each acted knowledgeably, prudently and without
compulsion” (International Valuation Standard IVS 1).
Income approach is suitable for valuing income-generating properties
by which property value is arrived at by capitalizing the anticipated benefits
from the property at market-derived rates of return. The method is also
adopted for valuing properties subject of existing tenancies or properties
commanding monopoly advantages where comparables of similar properties
may not be available. For properties involving varying and complicated
future cash-flows, the Discounted Cash-Flow (DCF) Analysis can be used. It
involves the projection of cash inflow and outflow and capitalization of the
resulting net cash-flow at market derived rates of return.
Cost approach is suitable for valuing those properties having no
identifiable market by which property value is based on the estimation of
current cost to reproduce or replace the existing structures and deducted
accumulated depreciation on the property. The method is mostly adopted in
valuing specialized structures and non-income producing structures.
Other approaches are applied for those properties where the above
mentioned approaches are inappropriate to assess their values, and can be
applied other methods such as residual method or profit method. The
residual method, which is mostly applied for site valuation, is based on the
hypothesis that the site value represents the residual value of the completed
developer’s profit to be incurred for such property development. Profit
method can be applied to business property having certain exclusive features,
which are material to its business or otherwise can enhance its volume of
business. In using this method, the operating profit generated from the
property would be investigated with reference to accounting statements of
the business and market information of the same trade. After deducting all
the operating costs of the business, profit tax and a reasonable sum for the
operator’s remuneration, the residual amount will represent the cost willing
to be paid by the operator for occupying the property. Market value of the
property will then be arrived by capitalizing the aforesaid amount with
market-derived rates of return.
 The residual method of the property valuation is used to define market
value of the real estate, if construction work is being done on the estate, in a
way of building, rebuilding, extension, refurbishing, assembly or
modernization work on the real estate. The value of the property is defined
as the difference between the value of the estate after the above mentioned
work has been completed and the value of the average cost of the work
taking into consideration the investor’s profit generated on the market from a
comparable real estate.
The residual method is used often for:
- performing analysis of profitability of projects regarding the
envisaged building, rebuilding, extension, refurbishing,
assembly or modernization work on the estate;
- defining the value of land as a part of the whole estate
- defining the value of a building as a part of the whole estate
Valuation of the property by means of the residual method can be
attained in the combination with other methods, using comparable approach,
revenue generating approach and cost approach.
The residual method can play a decisive role in making investment
related decisions. Some circumstances involved are:
- valuation of real estate where finishing or modernization
work requires obtaining a bank loan;
- valuation of real estate in order to purchase or sell real estate
which requires modernization, refurbishing or other work
leading to amelioration of standards of the real estate, for
instance by upgrading the class of a hotel or office building.

There are assets that are sold quite seldom or never. They are called
specialized assets and their value is calculated in business mostly using net
replacement cost method and not as a way to a business.
Basically, the assets that can be valued based on this method are:
• Oil refineries;
• Chemical combines where the most significant part of constructions
represents structures or support for specialty equipment;
• Power plants;
• Installations of basins where constructions, shore development
works are directly connected with the owner’s business;
• Other specialty projects;
• Assets located in private geographical areas;
 • Specialty urban public works;
• Exhaustible assets (real assets whose value gradually decreasing- e.g.
fields with mineral resources, cemeteries, granted grounds).
• Public sector assets (e.g.: operational infrastructure assets: roads,
public roads, railways, airports, facilities for public and defense
services).

The net replacement cost related to specialized properties is an

estimation procedure used in assessing the value for the existing use.

Estimates of the net replacement cost relate to:

• Cost of specialized buildings;

• Cost of constructions when some skills are assured in line with the
current technology for its operation (restraints to this requirement applies
to constructions included on the list of historical, architectural
monuments or monuments taken into account to be moth balled);
• Necessary development cost including cost of infrastructure works,
drainage, pumping stations, treatment plants, environmental protection
works;
• Professional fees taxes to get approvals, licenses, impact studies etc.
• Availability of some regional development subsidies.

These values are revised with:

• Economic depreciation of specialized buildings due to the

tehnological level of similar production processes;
• Structural depreciation of specialized buildings;
• Functional depreciation of specialized buildings;
• Strategically depreciation of specialized buildings;
• Depreciation related to environmental legislation.

The estimations of these specialized assets are mainly requested for the
following goals:

• Financial information;
• Guarantees for credits-mortgages;
• Investments- insurance companies, real estate funds;
• Companies of real estates development;
 • Estimates for establishing the representative market in the
capital market;
• Business assessments

¾ Mergers
¾ Liquidations
¾ Acquisition
¾ Sales

The valuation methodology for industrial properties

There are three generally accepted approaches to value the industrial
properties namely: cost, market and income capitalization approach. The
theory of these approaches is outlined as follows:
The cost approach establishes value based on the cost of reproducing
or replacing the asset, less the depreciation from physical deterioration and
functional and economic/external obsolescence.
Cost of reproduction new is defined as the estimated amount required
to reproduce the asset at one time in like kind and materials in accordance
with current market prices for materials, labor and manufactured equipment,
contractor’s overhead and profit and fees, but without provision for overtime,
bonuses for labor or premiums for materials or equipment.
Cost of replacement new is the estimated amount required to replace
the entire asset at one time with modern new unit using the most current
technology and construction materials that will duplicate the production
capacity and utility of an existing unit at current market prices for materials,
labor and manufactured equipment, contractor’s overhead and profit and
fees, but without provisions for overtime, bonuses for labor or premiums for
material or equipment.
Physical deterioration is the loss in value resulting from wear and tear
in operation and exposure to the elements.
Functional obsolescence is the loss in value caused by conditions
within the equipment such as changes in design, materials or process that
result in inadequacy, overcapacity, and lack of utility or excess operating
costs.
Economic/external obsolescence is an incurable loss in value caused
by unfavorable conditions external to the asset such as the local economy,
economics of the industry, availability of financing, encroachment of
objectionable enterprises, loss of material and labor sources, lack of the
efficient transportation, shifting of business centers, passage of new
legislation, and changes in ordinances.
The cost approach generally provides a meaningful indication of the
value of land improvements, special buildings, special structures and special
machinery and equipment associated with a viable business or justified by
economic demand.
When market transactions of comparable assets are not available,
when data cannot be extrapolated from larger transactions, or when
transactions are non-existent, under premise of continuing use, assuming
adequate earnings the cost approach is the preferred valuation procedure.
The sales comparison approach is based on the value of the asset that
is estimated through analysis of recent sales of comparable items of the asset.
It is employed in the valuation of the asset for which there is a known used
market. Under the premise of the continuing use assuming adequate earnings,
consideration is given to the cost to acquire similar items in the used-
equipment market; an allowance is then made to reflect the costs for freight
and installation. A variant of the direct sales comparison approach is the use
of market relationship. Recent market prices for asset in a property
classification are determined with respect to age and are compared with a
benchmark price, such as the cost of the reproduction new. The ratio is
applied to similar property in the classification when the secondary market
for the subject asset is too sparse to exhibit appropriate comparables.
The income capitalization approach is based on the value that is
developed on the basis of capitalization of the net earnings that would be
generated if a specific stream of income can be attributed to an asset or a
group of assets. This approach is most applicable to investment and general-
use properties where there is an established and identifiable rental market.
In any appraisal study, all three approaches must be considered, as
one or more must be applicable to the subject equipment. In some situations,
elements of two or three approaches may be combined to reach a value
conclusion.

The valuation methodology for specialized trading properties

Specialized trading properties are individual properties such as hotels,

fuel stations and restaurants that usually change hands in the marketplace,
while remaining operational. These assets include not only land and
buildings, but also fixtures and fittings (furniture, fixtures and equipment)
and a business component made up of intangible assets, including
transferable goodwill.
Under International Financial Reporting Standards (IFRS), like other
types of real property, a specialized trading property may be carried on an
entity’s balance sheet at either cost or fair value. Ti may be necessary to
allocate the value of a specialized trading asset between its different
components for depreciation purposes.
The specialized trading properties are valued in accordance with
International Valuation Standard 1 – Market Value Basis of valuation. They
are considered as individual trading concerns and typically are valued on the
basis of their potential Earnings before Interest, Taxes, Depreciation and
Amortization (EBITDA), as adjusted to reflect the trading of a reasonably
efficient operator and often on the basis of either DCF methodology or by
use of a capitalization rate applied to the EBITDA. Valuations of these
specialized trading properties are usually based on the assumptions that there
will be a continuation of trading by a Reasonably Efficient Operator with the
benefit of existing licenses, trade inventory fixtures, fittings and equipment,
and with adequate working capital. The value of the property including
transferable goodwill is derived from an estimated maintainable level of
trade. If the valuation is required on any other assumption, the valuer should
make such assumption explicit through disclosure. While the actual trading
performance may be the starting point for the assessment of the fair
maintainable level of trade, adjustments should be made for atypical
revenues or costs so as to reflect the trade of a reasonably efficient operator.
It is not included the generated profit in excess from the market expectations
that may be attributable to the manager. Although the concepts and
techniques are similar to those often used in the valuation of a large scale
business, to the extent that the valuation of a specialized trading property
does not usually consider tax, depreciation, borrowing costs and capital
invested in the business, the valuation is based on different inputs from those
of a valuation of a sizable business (International Valuation Standards,
Seventh Edition, GN 12 – Valuation of Specialized Trading
Property/Guidance).
The components of a specialized trading property entity value are
typically:
- land
- buildings
- fixtures and fittings (furniture, fixtures and equipment including
software)
- inventory which may or may not be included
 - intangible assets including transferable goodwill
- any licenses and permits required to trade.
The equity is not valued for specialized trading properties. An
estimation of the individual values of the components can only represent an
apportionment unless direct market evidence is available for one or more of
these components to isolate component value from the overall value of the
specialized trading property. Changes in market circumstances, whether
structural to the industry or due to the local competition or another reason,
can have a material impact on value. It’s necessary to make a difference
between the asset value of a specialized trading property and the ownership
value of the business. The valuer will require sufficient knowledge of the
specific market sector so as to be able to judge the trading potential as well
as knowledge of the value of the individual component elements.

The contingent valuation

There are essentially two types of the market surveys. The first type of
survey is a survey of past actions taken by market participants. An
appraiser’s sales confirmation process is an informal and limited example of
this type of survey. Its purpose is to elicit information as to what action was
taken and why the participants to the transaction took that action.
The second type of survey is a survey of prospective actions that
might be taken by possible market participants under hypothetical conditions.
A contingent valuation survey is an example of this type of survey. Basically,
respondents chosen by some statistically valid method are asked to play the
part of market participants in a hypothetical scenario. The respondents are
asked to answer questions as to what actions they might take under the
hypothetical circumstances, and they might be asked to explain these actions.
Over the past few years, a number of articles in real estate literature have
presented contingent valuation surveys as a method that may be used for
valuing real property or impairments to the market value of real property.
The contingent valuation technique is not an appropriate real property
valuation technique.
The contingent valuation technique is sometimes used in real estate
research to attempt to measure the price effects of a detrimental conditions
on property values (e.g. which is the amount by which a hypothetical buyer
would reduce a purchase price for a residential property because the property
was adjacent to a leaking underground storage tank at a service station. The
objective is to measure the impact of the leak).
 The application of the contingent valuation technique to real estate or
real estate damage quantification is unlikely to be reliable or quantitatively
meaningful. The contingent valuation technique was neither designed for,
nor is it applicable to, the valuation of goods for which there is a market.
The use of the contingent valuation technique is important as a corroborative
technique and may be the sole technique available to determine property
value losses when other local sales data are insufficient. It is common
knowledge that “real estate markets are influenced by many local factors and
broad generalizations across markets are difficult, particularly with respect
to environmental impacts”. Intervening local markets conditions
significantly influence the way in which environmental contamination
impacts property values. Contingent valuation technique has found recent
application as a method of estimating the value of market goods. It has been
more widely used as a technique to estimate the value of non-market goods.
Its importance in the valuation of environmental damages for public goods is
commonly accepted. It has been used to estimate the benefits of things such
as increased air and water quality, increased risk from drinking water and
underground contaminants, outdoor recreation and protecting wetlands,
wilderness areas and endangered species.
McLean and Mundy (1998) advocate to use of contingent valuation in
real estate for two reasons: first, they suggest that buyers may be unaware of
the impact of contamination on their property values, thus impacting the
reliability of sales data. They also find it important to use when the
availability of adequate sales data is limited, thus making traditional
valuation techniques unreliable and difficult to use. Simons (2002) used
contingent valuation to estimate property damage from PCB contamination
in a small town market in Alabama. Literature regarding the impacts of
petroleum contamination on property value is diverse. A study by Simmons,
Bowen and Sementelli (1997) found that residential property within 300 feet
or on the same block as a registered leaking underground storage tank
(LUST), with the tanks still present, sustained an average reduction in sales
price of 17%, holding all else constant. These results were based on
proximity only and did not consider whether the properties were actually
contaminated or threatened with contamination.
The contingent valuation technique was applied also in other contexts:
- to evaluate the effect of risk beliefs on residential property values
by conducting a case study of a hazardous waste landfill;
- to study the effect of a smelter and refining plant on residential
property values;
 - to discount the property value on similar types of environmental
problems across the space and time (hazardous waste facilities,
sanitary landfills, chemical refineries and PCB contaminated sites).
All has comparable effects on property values.
Jackson (2001) addresses published contamination studies in an
appraisal context, including studies of all types such as hedonic regression
analysis, case studies and published accounts of real estate appraisals, on a
variety of real estate types that includes both residential and commercial use.
He generally found that contamination has an effect on prices, but the effect
was temporary. He also notes the importance of intervening factors, such as
market demand, on discount outcomes.
Boyle and Kiel (2001) also address the issue on consistency for value
diminution for various types of contamination on residential property
(usually houses but occasionally residential land) for studies using hedonic
regression analysis. After normalizing results to a base year, the authors
found, overall, that among air quality studies, results were not consistent.
Water quality studies and undesirable land use studies generally had the
correct sign on coefficients, and results were different types of
contamination. Estimated effects ranged substantially for different types of
contamination. Even among fairly typical uses, such as landfills, there was a
spectrum of severity, information and other factors involved that markets
were able to capitalize.
As a methodology, the contingent valuation has its limits. Some
survey participants may have a stake in the outcome of a case and could not
give biased results in order to secure funds. Others may have issues with the
polluter, and give responses based on feelings irrelevant to the issues at hand.
To avoid these validity threats, the researchers did not include respondents
directly involved in litigation, nor were the polluters named.
The survey methodology follows standard research protocols. The
initial instrument is pre-tested for the time length, clarity and other potential
problems, and subsequent instruments utilized the same of very similar
questions. In order to emulate the market and recognize that the top marginal
bidder would be much more likely to successfully bid on the property, the
number of bidders is divided in half (top half bidders) based on the discount
percentage. Further, the data are partitioned again (top quarter bidders) and
then analyzed using both pool of bidders. With respect to the pro-bit analysis,
both top half bids and top quarter bids are used as dependent variables in
separate model estimation. The pro-bit model is used on quantitative studies
that include a dichotomous choice dependent variable. The model is
specified as:
 Y = β0 + β1X1 + β2X2 +…+ βnXn + u
Where Y is the dependent dichotomous variable (top half bid or top
quarter bid) and the β weights represent the coefficient values of various
independent demographic variables (x) and u represents the error team. The
independent variables used in the analysis include age, education, household
size, gender, race, region, local market and information changes.
The results of the pro-bit model show the impact of the independent
variables on the respondent’s probability of being in the top half bid and top
quarter bid groups. One of the most important demographic indicators in
bidding is the education of the respondent. Those with no high school
education were more likely to bid. This relationship was statistically
significant at a level of confidence of .01. A positive sign on the coefficient
indicates a positive relationship with the probability of bidding: however the
β coefficients do not have a percentage interpretation in their current form.
Males are more likely to bid than females, which is significant at a
confidence level of .05. Income has a negative affect on bidding. As incomes
increase, the probability of bidding decreases. This is significant at a level
of .05.
Over the past several years, the contingent valuation has been used to
illustrate the potential residential buyer bid prices for contaminated property
and those discounts associated with other negative amenities. One
interesting finding is that one of the most important demographic sub-
markets for bidders on contaminated property appears to be under-educated
men. Thus, real estate agents faced with selling a residential property that
has disclosed environmental contamination are likely to find this market
segment most receptive (The Appraisal Journal, Winter 2006).

The issue of the safe handling, storage and disposal of hazardous and
toxic materials is becoming a significant problem. The impact of hazardous
materials on property value is difficult to measure. While some models of
real and perceived risk exist, to integrate them with the actual market
behavior is problematic. A theory of how contamination influences value
that incorporates the damage related to lost income as well as the damages
incurred by the lost opportunity to fully use a property is presented in the
article “The Impact of Hazardous Materials on Property Value”, written by
Bill Mundy, in April 1992.
The real estate impact caused by contamination was analyzed by some
researchers who used many statistical methods to determine whether risk
associated with various types of hazardous and toxic material has an impact
on property value. A review of this research study leads to several
conclusions. First, an adequate general theory of how contamination affects
property value has not been developed. A link has not been established
between a general theoretical model and a site specific empirical model.
Second, property values are affected by many complex events over time.
While both the severity and the persistence of contamination have an effect,
these factors are not necessarily related. Third, the statistical models have
not been properly used. Data sets are too small and the variables are neither
properly specified nor adequate. That is, they do not reflect important
moderating variables, such as lender/lending institution attitudes, which
have substantial effects on the marketability and value of property.
Multiple regression analysis is an increasingly used technique in the
real estate appraisal field. The appraiser must interpret the results of the
modeling process and apply those results to the facts of the situation being
analyzed. The appraiser must also have sufficient basis for concluding that
the results are credible and reliable. This could involve statistical testing of
the results to ensure that they are not biased in a statistical sense and that the
model is adequately specified. Complex multiple regression analysis models
can produce results that do not reflect the market’s reaction to a specific
environmental condition or influence, but may reflect other influences
masquerading as adverse environmental effects on property values.
The impact of contaminating material has on the value of a property
can be traced on a time continuum. A clean property has a value equal to full
market value. A contaminated property that is perceived as clean can also
have a value equal to full market value. When the public or an influential
part of it (a scientist, the media) becomes aware that a contaminated property
poses a health or financial risk (either real or perceived), the property is
transformed into a problem property, which will affect value. When the
market perceives a property as a problem, value will be significantly
affected in several ways. When a property loses its marketability, it loses
also its value. When the contamination is controlled, the value of the
property would be expected to increase to full market value, if the public
believes scientists and public health experts. This difference between cured
value and full market value is the residual uncertainty caused by stigma, and
should decrease with time as the public’s perception of risk subsides –
assuming there is no further contamination.
For an income producing property, such an apartment, this process has
two value-influencing components. The first is the impact the hazard has on
the marketability of the property. The second is the effect the hazard has on
the property’s income-producing ability. For non-income producing property,
the income effect would be the lost utility of the property.
 The income effect is the present value of the difference between the
property value, as if uncontaminated and the property value as if
contaminated, and it is related to lost income. The damage is estimated by
discounting the present value of lost income over the duration of an event –
at a market interest rate in the uncontaminated condition, and at a risk rate in
the contaminated condition.
The marketability effect quantifies the damage directly related to the
lost opportunity to fully use the affected property. The cost is measured by
the present value of the diminished value over the duration of the event at a
market rate.
Mundy’s article on contaminated real estate is significant for two
reasons. First, it provided guidance to the valuation community when little
existed. Secondly, it inspired a spate of articles on the topic.

In recent years, the contingent valuation has been suggested as an

appropriate fourth approach to value, the first three being: the sales
comparison approach, the cost approach and the income capitalization
approach. The contingent valuation method has been in use for more than 40
years, typically as a technique for measuring the value of non-economic
goods (goods that are not traded in an active marketplace). There are
relatively few published studies examining a specific real estate impact
using contingent valuation methods. The unreliability of the contingent
valuation surveys is especially significant for appraisals submitted in
litigation assignments. One of the accepted methods for demonstrating the
reliability of nontraditional appraisal methods, such as contingent valuation,
is to show that the accuracy of the method has been tested in the marketplace.
The reliability of the contingent valuation in the courtroom must therefore be
carefully considered by appraisers, attorneys and judges before it is used as
an alternative to the generally accepted methods for determining economic
damages to real estate.

Valuation methodology for the historical monuments

The historical buildings are recognized in Europe as having a positive value,

not only cultural, but also economic, in terms of tourism, social status and
commercial efficiency. Many historical buildings are monitored seeing the
protection of the unique qualities and characteristics that give their
architectural, cultural and/or historical value.
 When analyzing such properties, the evaluators must be aware of the
financial and cultural value of the historical buildings, and the potential
negative influence given by the augmentation of their financial and cultural
values, as well as the consequences of some intervention measures. This is
the reason why the evaluators must identify and inspect the historical
buildings in the process of evaluation, so that their financial, cultural,
architectural and historical interest can count, including any intervention of
protection, in determining the value of the building and the requirement of
intervention measures.
The evaluation of the historical buildings is a very complex activity,
that must consider the knowledge of the building`s exigenty, as well as the
interpreting the contribution of the intrinsic valoric components in
determining the value, in the context of the structural and functional
exigency, of the adequate intervention technologies, and last but not least,
the proper materials used in this interventions.
When advising about repair works inside an evaluation, it is
imperative that the evaluator has the certitude that, in case of performing the
evaluation, the project does not affect the stuctural or historical integrity of
the building, its future structural state, or its preservation.
When there are doubts about possible influences or consequence of
any works or modifications, the evaluator must mention a subsequent
recomandation from a proper qualified person, with no financial interest and
adequate training in repairing and maintenance of the historical buildings.
Considering this simple approach, it will be a sure fact that the evaluator will
not make inadequate recomandations, or that they could deteriorate the value
of this limited and important resource.
The notion of historical monument includes both the architectural
conception and the urban or rural settlement that show evidence of a certain
civilisation, of a significant evolution, or a historical event. Therewith, the
notion of historical monument extends also on small works that over time
aquired a cultural semnification.
Historical monuments are immovables, buildings and fields situated
inside Romania`s territory or outside the borders, properties of the romanian
state, significant for the national and universal history, culture and
civilisation.
The preservation of the historical monuments represents the whollness
of measures with scientifical, legal, administrative, financial, fiscal and
technical character, intended to ensure the identification, research, inventory,
rating, tracking, preserving, including custody and maintenance,
strengthening, restauration, and valorisation of the historical monuments,
and their social, economic and cultural integration in the local communities.
To preserve the historical monuments, legal economical measures are
established.
Public servitudes can be applied on historical monuments, legally
established.
The attribute of historical monument must be marked on the building
by a note applied by the city hall agents, according to the legal norms of
signaling of the historical monuments.
The obligation regarding the usage of the historical monuments
represents the act that defines the conditions and rules of usage or
exploitation and maintenance of the rated real estate, called “obligation
concerning the usage of the historical monument”, wich accompanies the
title deed, concession act or leasing act, on the entire life of the building in
question.
The obligation concerning the usage of the historical monument is a
servitude constituted in the building`s benefit, and it is inscribed in the Land
Register by the owner, in a 30 days term from de comunication date.
The obligation concerning the usage of the historical monument is a
part and parcel of the Technical book of the building. In case it doesn`t exist,
the obligation concerning the usage of the historical monument holds place
for the techical documentation of the utilisation of the real estate, according
to law.
The protection area of the historical monuments represents the field
areas with the afferent immovables delimited by the town plans, approved
according to law, wich establishes rules regarding the works execution.
Until the establishment of the protection area of each historical
monument, according to art. 8 from 422/2001 law, it is considered protection
area the surface defined by a radius of 100 m in the urban localities, 200 m
in the rural localities and 500 m outside localities, measured from the outer
limit, around the historical monument.
The protected area represents field areas with te afferent immovalbes,
situated in the urban area or outside it, delimited by the town plans,
approved according to law, wich establishes the rules for interventions in the
built or natural protected areas.
The following historical propertie can be protected:
− urban and rural historical configurations, along with natural or cultural
landscapes and their topography
− historical architectural buildings and urban complexes and their
configuratios
− urban or rural architectural works, along with afferent accessories and
surroundings
− cemeteries, parks and gardens, and other forms of organised landscape
− fortifications and other military works
− water tanks along with technical afferent equipment
− archeological sites and every object discovered during the archeological
research, including ground degradation or improving, such as caves,
mines, castles, graveyards
− ethnographic buildings, such as tipical urban or villages habitations
− industial buildings, structures, manufactories, equipments additions or
improvement for mines, workshops, steel works, that reflect de industry,
culture and science development, wich are characteristic for old and new
forms of businesses and industries
− places and buildings that reflect traditions, or commemorate historical
events or the activity of eminent people or institutions
− other properties that deserve being conserved because of their scientifical,
artistic, historical or cultural value.

Aspects regarding the uniqueness of the historical properties

Elements that differentiate the historical estates from the other estates
include:
1. high level of legal protection
2. architectural, historical, scientifical or artistic value
3. limitations concerning
- their availability
- their removal
- any change in their utilisation
- modernisation works
4. the obligation of making them accessible to the community, and for
scientifical and education purposes

The elements that differentiate the historical estates from the other
estates include:
1. the envisage of the immediate vicinity, as a part and parcel of the real
estate – field, settlement, sights of the property and its background
2. rare occasions when they appear on the market
3. frequently, the partial or complete modification of their initial
utilisation
 Data sources and informations about historical properties

Before beginning the evaluation process, the evaluator must gather

sufficient data and information about the historical property, allowing him to
make an evaluation that considers all relevant factors. The data sources and
informations about the current status of the real estate inscribed in the
building book, cultural and historical values, and preservation works include
(besides the sources that are usually engaged in the evaluation process)
documents contained in the building book.
These documents can include (depending on the property`s location):
− the official decision that rates a cultural asset as a listed property
− any kind of demonstrative paper
− iconographic and photographic documentation
− any kind of legal documentation
− any kind of technical documentation about the preservation or other
works on the building
− records about foregoing preservation works, along with estimations about
the cost of these works and the finance sources
− any other documents that define unique aspects of the historical property

In the case of historical properties that are not included in the record
and rating register, the evaluator must search data and informations, wich
will probably be put at his disposal by the culture directorat who
administrates the monument.
The typical sources can be:
− historical documentation; inventory
− descriptive or illustrated documentation
− iconographic or photographic documentation
− stipulations of the local maps regarding the real estate`s position, or other
decisions on the development conditions

Documents and specialist`s opinions can be used as an informig

source if, according to the evaluator, they are indispensable in the evaluation
process.

General rules for determining the historical property`s value

Before attempting to determine the historical property`s value, the

evaluator must consult the authorities responsable for the historical
properties, congruent with the historical properties maintenance laws.
 In the case of historical properties, wich contain mostly parks, gardens,
forrests and other landscape areas, authorities can be involved, beside those
who deal with real estates consisting mostly in buildings.
Unless legal stipulations allege otherwise, the historical property`s
value must be determined as the integral value of the field and it`s
improvement, including close surroundings, landscapes, external influences
about the properties, with a particular attention on the environment elments
that can increase the property`s value, by amplifying the landscape`s
characteristics.
If the evaluation process requires the separate determination of the
value of the field and other elements, the evaluator must keep in mind that
the sum of the real values of separate elements is not always equal to the
property`s value.
As a part of the historical properties evaluation process, the evaluator
must consider the criterion he will adopt in approaching the method and
tehnique, with a special attention on:
− any kind of decisions from the authorities responsable with the
maintenance and preservation of the historical real estates
− local maps stipulations concerning the usage of the historical real estate
and its surroundings
− the purpose in wich the evaluation and the evaluation report will be used
− data and market informations availability
− the repair condition of the real estate to be evaluated
− any other circumstances concerning the historical character of the real
estate.

The value of the historical property is determined after the

simultaneous consideration of the technical state and actual usage, wich can
differ from the authorisation emitted by the qualified authorities. In the last
case, the value must be diminished by the sum of the costs required to bring
the real estate at the actual exigencies level.
If the legal stipulations do not specify the method for the value
establishment (market value or substitution value), the evaluator determines
both values, and adjust them, thus justifying the final result.
If the real estate, or any of its elements have been introduced in the
building list registry, the evaluation must not consider any other special
condition concerning the sale, the establishment of any successor or other
legal title for the property usage, especially lease or tax exemption.
Informations about such exclusions must be included in the evaluation
rapport.
 Determining the market value for historical real estates

The market value for a historical property is obtained by adopting the

comparison approach, or the revenue approach, depending on the current
state of the real estate market, regarding the real estate`s position, grade,
type and character.
Due to the unique character of the historical real estates, it is also
necessary the utilisation of the informations from the following real estates
markets:
− local market
− regional adjacent markets
− national or inter-regional market (concerning similar real estates from the
point of view of the type and function)
− international markets (concerning real estates with peculiar significance,
unique value)

The market value of a historical real estate that generates or could

generate incomes must be considered by approaching and utilising income
based techniques.
The evaluator must consider the benefits obtained, and as well the
costs to be stood up, along with the legal requirements concerning the real
estate`s protection, and the limitations wich the owner or the occupant will
be subject to, such as:
− the owner`s or tenant`s benefits (rent, incomes from businesses with the
real estate, the unique prestige and attraction by the real estate)
− the costs of real estate usage or tenement
− the costs of financing need, for the real estate`s improvement, imposed
by the authorities for the preservation
− any limitations imposed by the real estate`s uniqueness
− any connection with adaptation or preservation works, requested to bring
the real estate to the imposed state
− any limitations concerning the possibility of extending the expectation
period for the technical documentation, wich is a condition for receiving
the approval for the preservation or construction works
− any tasks related to the requirement of using traditional methods in the
preservation works, that can involve high price building materials, and
high qualified specialists in civil engineering or preservation works,
forestry specialists, or landscape artist to upkeep the adjacent area of the
 real estate
− anu other obstacle of individual nature that depends on the real estate`s
type and prestige.

Historical real estates that at the evaluation date do not have a

commercial character can be evaluated using the income method only in
special cases, if at the cost accounting can not be used the comparison
method, and when the purpose of the evaluation requires determining the
market value of the properties, for alternative usage. In these cases, the
evaluator must justify in detail the presumptions used in his analysis, wich
can not appear in the preservation authority`s requests.
The market value determination for the historical property using the
comparison method is based on the trade affair market value of the similar
properties (as type, rank, number and functional character). When making
such an evaluation, the following aspects must be considered:
1. physical aspects
− location
− acces to transportation facilities
− the nature of close vicinities
− the field area
− technical al economical parameters of the building
− the position of the mentioned elements, and the relation between them,
the state of usage
− the state and character of the media services
− the possibilities of development, congruent to the special conditions,
imposed on the real estate, and the development plans stipulations

2. non-physical aspects
− the unique attraction of the location, and spacial-architectural hypothesis
− the homogeneity of the style and the architectural form aestethics
− the historical and cultural value
− the sparseness of historical properties in the limited real estates maket

When using the comparison method, the real estates to be compared

with must be choosed adequate by the evaluator, depending on their
relevance. When choosing similar market transactions, legally restrained
transaction must be omitted. In cases when circumstances (such as limited
database) obligate the evaluator to consider these transactions, the data must
be adjusted, and the evaluator must justify these corrections. When
comparison method is used, it is not utilised a statistical market analysis,
considering the individual characteristics of the real estates, and the limited
transactions on this market.

Determining the replacement value of the historical real estates

The replacement value of the historical real estate is equal to the

reconstruction costs minus the devaluation; this represents the sum of the
market value of the field and the replacement value of all the improvements
and real estates (buildings and other immobilised elements, as well as
natural elements).
The replacement value of the historical real estates can not be, in any
circumstances, perceived as the market value.
The replacement value is detemined by using:
1. the comparison approach, regarding the field evaluation (e.g. cost
accounting of the field)
2. the constructive approach, to determine the replacement value of the
buildings and other real estates

In legal specified cases that require a separate evaluation of the land,

the evaluator must choose a comparison approach, given that for unbuilt
space he must not consider trade affair prices of the rural fields or forrests
for his comparison. In special cases, if disposing of sufficient data, the
evaluator will evaluate such a field with the composite technique, the
residual method that uses the present usage income method, and a cost
analysis for the necessary investment funds in order to achieve the necessary
exigencies. The result of subtracting the last from the first is the residual
value of the field.
In the cost method, the evaluator determines the replacement value of
the ordinary buildings. By using the cost method in the historical real estates
evaluation, the technique of the replacement cost is not used. The
replacement value calculation requires a detailed analysis of the real estate`s
status from the evaluator, analysis wich must include the determination of
the devaluation level, as well as the loss of architectural details and
functional character of the real estate, construction elements and
combination of these elements if they constitute an architectural entity.
To determine the devaluation levels above mentioned, further
considerations must be made, concerning the costs of bringing the real estate
to the following stage:
1. the stage of total technical usage of the real estate
2. the stage of total architectural and cultural value
 3. the stage of total functional usage

The repair level must be correlated to the guidance validated by the

preservation authorities. The costs involved by bringing the real estate to the
above stages must be compared to the actual value loss of the real estate.
Except from the case of contrariwise legally stipulations, the evaluator
must effectuate the real estates and their elements evaluation, and when
determining their market value or replacement value, to utilize adequate
evaluation methods and techniques, and to pay attention to:
1. the landscape integrity, which denotes the harmony between natural
surroundings and the real estate's architecture
2. the landscape's attractiveness, which reflects the environment's
influence on the close vicinity of the architectural elements, who has a
visible effect on the whole historical real estate
3. using the landscape and space, which combines the utility of a certain
environment element with the architectural and spatial structure of the
real estate concerning possible preservation works.

These can be:

- preserving or maintaining the actual state
- renewal and exposure of the elements that block the settlement,
replacing the missing parts
- adapting, which, besides preservation works, requires changes in
composition related to the introduction of new function
- restitution, replacement based on the original and iconographic
materials, disaffection due to lack of historical style, over investment
or over decorating the historical real estate.

The mentioned elements influence the real estate's value more than the
environment elements, who do not usually have an intrinsic value, because
of the limitations to which are subject.
If the evaluator considers the above conditions in his evaluation, he
must always justify the influence which these aspects had on the evaluation's
result.

Taking into account the intrinsic character of the specialized assets,

their valuation needs training of a specialized valuer. Valuing specialized
assets requires expertise in engineering, economics, finance and general
business knowledge. The professional expertise must be brought to the
valuation process in the development of cost, income and market valuation
methods. The engineering and construction costs of highly specialized
properties require the inside of the engineers and economists who have
addressed the development of the costs and depreciation issues for their
entire career. The specialists’ expertise in financial analysis and
capitalization of the income techniques are used in arriving at value
conclusions to incorporate the economics and prospect of the property being
appraised.
These specialists should be selected in compliance with their
competence, experience, well-known reputation in the field and with
postgraduate skill completed with continuous training programs.
If the appraiser knows the agreed transaction price before doing the
appraisal, then small errors could indicate poor methods. If appraisals
always equal the transaction price, then appraisals are not adding new
information to the decision process.
Thinking about appraisal methods as protocols, leads to interesting
observations. First, compared to the detailed protocols of the quantitative
chemistry manuals, the instruction on how to carry out a three approaches to
value exercise a fairly vague. How many sales should be collected? How
should comparables be selected? How is the discount rate arrived at? Which
hedonic characteristics are included in a price differences model used to
adjust sale prices? Where do the adjustments factors come from? Experts
may look at different evidence and used different methods to arrive at their
value estimates. To a degree, this creativity in valuation methods arises from
the diverse nature of valuation assignments and therefore results in better
valuation. But the profession and regulators have struggled with the lack on
standardization and difficulty in quantifying and controlling likely errors.
The Uniform Standards of Professional Appraisal Practice (USPAP)
aims to set forth and embody the general principles and practice standards in
broad terms, including relationship with clients (engagement letters, scope of
work and disclosure) and uses of reports as well as appraisal methods. It is
essential that appraisers develop and communicate their analysis, opinions
and conclusions to intended users of their services in a manner that is
meaningful and not misleading. USPAP includes sections on ethical
standards and general principles. Protocols may vary greatly depending on
the specific context, property type and purpose of the assignment.
Generic steps similar to the following are common to all real estate
appraisal protocol:
 - definition of the appraisal problem and choice of appropriate value
definition and methods (protocols)
- inventory of available data on transactions and property
characteristics to be used in inferring prices and selecting a sample
of sales
- choice of particular sales to be used in inferring prices, including
how many sales to use and how to choose them
- a price differences model that lists relevant characteristics to
compare between properties and a method for estimating the price
effects of these differences
- a method of weighting the individual members of a sample of
transactions used in determining the final price estimate.

Specific protocols for a particular type of property and purpose for an

appraisal would fill in the details of the generic steps in an appraisal process.
Developers of Automated Valuation Models must use specific
protocols, a key to consistency of these methods’ results. We need more
protocols for different kinds of property. Certainly at least several dozen
protocols, and perhaps hundreds of protocols are needed for various kinds of
properties and markets, as well as, perhaps, custom protocols for unusual
properties. For example, to value a chicken farm the valuer need to know
chicken farming. Points of comparison or adjustment factors include
property characteristics that have to do with the efficiency of chicken rising
such as design features of specialized buildings, access to markets for
chickens, and so on. The issues are different for those that are important in
valuing a farm raising wheat or sheep or sugar beets. Each of these different
kinds of farm operation should be valued using a different pricing model as
part of the overall protocol. Specialists do commonly use such detailed
protocols for particular types of property. Letters of instruction and the
internal training and procedures of appraisal firms could make these
methods explicit and require their use and thereby help standardize the
quality of appraisal estimates and their error distribution.
In cases where the assignment is unique, or perhaps in every case,
appraisers should keep a detailed record of all the steps in the valuation
process starting with sources consulted for data, the universe of sales
evidence identified, methods used for choosing sales and methods used for
pricing differences.
In addition to types of properties requiring valuation in methods, the
purpose of the valuation may also require adapting the protocol to the
question at hand. The protocols also have to be sufficiently detailed to
ensure consistency in their application, otherwise, the accuracy of results
become uncertain. There is a trend towards specialization in appraisal,
meaning that different appraisers are developing more detailed protocols for
particular types of valuations. These protocols need frequent or even
continuous error monitoring to confirm their performance. They do not
replace real estate expertise, but rather redirect some appraiser attention
from individual appraisal assignments to the methods or work processes
used for each type of assignment and to monitoring the performance of those
more specific, clear and detailed methods.

These requirements imposed by this profession are sustained by the

fact that currently there isn’t a proper academic training for the valuer of
specialized assets.
It is mentioned that a Committee of Valuers that are members of the
National Association of Romanian Valuers has been working since 1992.
They graduated short time courses organized by the National Association of
Romanian Valuers (ANEVAR), Body of Experts and Licensed Accountants
of Romania (CECCAR), Romanian Institute of Economic-Social Research
and Opinion Polls (IRECSON in Romania), Chamber of Commerce and
Industry (CCIR in Romania) etc.

At the same time, ANEVAR has promoted continuous training

programs and professional strategies. ANEVAR is a member on the
Executive Board of the International Valuation Standard Committee (IVSC),
member of the European Group of Valuers Associations (TEGoVA) and of
the World Association of Valuation Organizations (WAVO). ANEVAR has
achieved international recognition in the field of valuation, establishing
cooperation relations with professional associations in the United States of
America, United Kingdom and many other European associations operating
in this field.
The organization of some postgraduate courses by the higher
education institutions in order to develop a body of evaluators in specialized
properties is in line with the ANEVAR’s activity of promoting this
profession at high levels.

Appraisal will always require judgment and decisions, both in mass

and individual appraisal methods. Despite these difficulties, more
transparency and attention to consistency in methods and the error
distributions generated by consistent methods should add value to appraiser
products.
References
1. Gramescu, Ana Maria, Prof. Dr. Eng. and Barbu, Daniela, Drd., Ec.,
The Technical Expert Guide”, 2nd edition, AGIR Publishing House (The
General Association of Romanian Engineers), Bucharest, Romania, 2006,
ISBN 973-720-042-X.
2. Gramescu Ana Maria, Prof. Dr. Eng. and Barbu, Daniela, Drd., Ec.
“The Valuation of Real Estate Properties in Construction”, Publishing
House EX PONTO, Constanta, Romania, 2006, ISBN (10) 973-644-520-8
and ISBN (13) 978-973-644-520-0;
3. Gramescu, Ana Maria, Prof. Dr. Eng, coord. and Barbu, Daniela, Drd.,
Ec. “The Valuation of Specialized Properties in Construction”, Publishing
House EX PONTO, Constanta, Romania 2005;
4. Hodges, McCloud, Three Approaches, The Appraisal Journal, Winter,
2007
5. International Valuation Standards, IVSC, Seventh Edition, 2005
6. Jackson, Thomas, Evaluating Environmental Stigma with Multiple
Regression Analysis, The Appraisal Journal, Fall, 2005
7. Kummerow, Max, Protocols for Valuations, The Appraisal Journal,
Fall, 2006
8. Lennhoff, D., Nine Big Ideas: Appraisal Journal Articles that
Influenced a Generation, The Appraisal Journal, Winter, 2007
9. Powell, K., Appraising the Appraisal Process, Professional Builder,
July, 2004
10. Roddewig, R., and Frey J. D., Testing the Reliability of Contingent
Valuation in the Real Estate Marketplace, The Appraisal Journal,
Summer, 2006
11. Simons, R. and Winson-Geideman, K., Determining Market
Perceptions on Contamination of Residential Property Buyers Using
Contingent Valuation Surveys, JRER, vol 27, no. 2, 2005
12. Wilson, A., Contingent Valuation: Not an Appropriate Valuation
Tool, The Appraisal Journal, Winter, 2006