An Appraisal Professionals Society (SPO) has been established in St. Petersburg at the initiative of St. Petersburg Property Fund and the Urban Real Estate Inventory and Appraisal Department (GUION), the main customers of appraisal services. Experts believe the creation of this structure is timely in light of the fact that on January 1, the new federal law On Self-Regulated Organizations came into force.

The Customer’s Initiative

Apart from St. Petersburg Property Fund and GUION, 35 professional valuators were the SPO co-founders. The new structure will hold the status of a self-regulated organization when it attracts at least 300 experts into its ranks. The experts believe this will happen rather soon. “Only in this year the Fund ordered more than 700 urban real estate appraisal reports to the tune of over 12 million rubles,” Mr. Stepanenko pointed out. As reported by general director of GUION, Dmitry Kurakin, about 1,500 independent valuators operate in St, Petersburg. “It’s difficult to estimate the volume of this market as it lacks transparency and orderliness. In St. Petersburg alone about 3,000 daily expert conclusions are given out by government appraising agencies, the average cost of an appraisal report coming to 25,000 rubles,” says the expert.

Representatives of the customers had a simple way of explaining their interest in a self-regulated association of appraisers: market transparency largely depends on the work of appraisal structures. “The result of the Property Fund auctions, robust competition during an auction sale and the outcome of an auction, or the amount eventually raised by the city administration, hang upon the quality of property preliminary appraisal,” pointed out Mr. Stepanenko.

Until recently, the situation on the appraisal market has not been very sound, according to expert opinion. As reported by Mr. Kurakin, the share of valuations made to order exceeds 60%. “The situation is more or less tolerable in the capital cities but not in remote regions. It’s not a secret that the customer often puts pressure on the valuator. If the matter concerns the appraisal of state-owned property for its further redemption, its cost is often undervalued. And when a real property is valuated for the sake of obtaining a bank loan, its cost is often overstated”, says the expert. Pursuant to the new law, the appraiser bears tangible responsibility for the result of his work while his self-regulated organization puts its good name at stake. Therefore self-regulation should considerably raise the quality of appraisal. “In addition, small appraisal companies who would hardly be able to compete on the market could operate under the patronage of a self-regulated organization. This will align the situation and preclude lobbyism,” says Stepanenko.

Deliberate Necessity

According to MP Victor Pleskachevsky, “the self-regulation law has for several years been sabotaged by the Russian government in spite of presidential support — perhaps because it would be the first experience of creating an authority at the ‘grassroots’ level; yet we passed it and that was a revolution!” By now only three nationwide associations of appraisers have been included in the public register — The Russian Appraisers Society, the Russian Panel of Appraisers and the Self-Regulated Interregional Association of Appraisers.

“As soon as the Ministry of Economic Development approves of the main appraisal standards, the appraisal market will enter a new era,” opines Vladimir Zhukovsky, head of the Moscow FT Center. He emphasizes that the valuation activity draws on the client trust. “The company’s success depends on its reputation which must be built by the appraisal community itself; hence the need for self-regulated organizations,” he says. As noted by president of Avers Group, Mikhail Zeldin, the appraiser’s work will pass through an independent expert examination, which will raise the quality of reports delivered by independent appraisers.

Pitfalls

As was stated by chief valuator of Balt-Audit-Expert, Dmitry Kuznetsov, the main problem with the appraisal system now lies in unjustified illusions cherished by legislators and the public that accurate measurement is possible. “Different skilled and conscientious appraisers will inevitably arrive at different results as they evaluate one and the same property, because they use different methods, and the gap can be rather wide,” he reasons.

In the words of Mr. Kuznetsov, “society is not ready to accept that appraisal is a professional activity land not about profiteering. It is more like being an attorney, a notary or a physician.” He thinks that if appraisal activity is carried out exclusively by legal entities, there will be no changes for the better, since “self-regulated bureaucracy will impede the work of individual professionals. If individual professionals were the subjects of valuation activity they will have good reasons to unite with time in order to get rid of any bias in their estimations and arrive at the fair value.”