(ii) According to the contribution principle, a component of an asset may be valued very highly, but in the market, this component of the asset is widely sold at a very low price. In that case, the assessment must be based mainly on the supply and demand principle and the substitution principle. Thus, it can be seen that the supply and demand principle is also an important supplement and a more specific explanation for the highest and best use principle, the substitution principle, future benefits and the contribution principle. In fact, it is the priority principle in the application process for the assessment of most types of assets as well as for different purposes.
In addition to the principles mentioned above, some scholars have also proposed other principles. However, the above 5 principles, which can be said to be commonly accepted principles, are an important theoretical basis for building standards, forming reasonable and scientific valuation processes and methods today.
1.3.2. Asset valuation process
The valuation process is a systematic, logical process that provides the valuer with clear, actionable guidance for the valuation task.
The valuation process is an orderly, rigorous plan of action, consistent with valuation principles, that helps the appraiser draw solid conclusions or well-founded and defensible value estimates.
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The valuation process includes 6 steps: Identify the problem, plan the valuation, collect documents, analyze documents and estimate the value of the asset to be valued, prepare the valuation report, and report the valuation.
- Step 1: Identify the problem
This is the first step of the valuation process. The purpose of this step is to help the appraiser to agree, negotiate and build the terms of the valuation contract in a specific and clear manner. At the same time, it is also the basis for the appraiser to plan the valuation in detail.
To achieve the above goal, in this step it is necessary to clearly identify the following basic issues:
+ Identify the physical characteristics of the target asset: Location, size...
+ Identify the legal characteristics of the target asset, such as: Documents on ownership, usage rights, licenses and terms restricting exploitation, transfer, etc.
+ Clearly define the customer's valuation purpose: Buying, selling, leasing, insurance, mortgage, financial reporting...
+ Determine the type of value to be estimated: Through the initial information and purpose of the customer, the appraiser needs to immediately confirm what type of value will be used in the contract: Market value, investment value, insurance value, mortgage value, replacement value, compensation price...
+ Determine the valuation method and documents required for valuation.
+ Determine the effective date of the valuation.
+ Determine the agreed fee and completion time.
- Step 2: Make a valuation plan
In this step, the appraiser needs to do the following tasks:
+ Identify the basic physical characteristics, property rights, supply and demand status and market characteristics related to the property to be valued.
+ Identify the types of documents that need to be used in the valuation process, including: Documents on the target asset, relevant current legal documents, documents on evidence and market movements.
+ Identify agencies and organizations that can and are responsible for providing information from the most reliable and verifiable sources.
+ Develop a work program and schedule, including: (i) List and order tasks: Collect and analyze data. (ii) Determine the allowable time limit for each task. (iii) Identify tasks that can be delegated.
+ Develop outline and presentation format of valuation report.
- Step 3: Survey the site and collect documents.
In order to collect the necessary information, the appraiser must first distinguish between primary and secondary sources of documents. The types of documents that need to be collected include:
+ Documents providing information about the target property. This information can be provided by the customer or can be obtained through an actual survey of the property. The time to collect this type of information will vary depending on the type of property being valued.
+ Documents used as basis for comparison, analysis, evaluation and adjustment such as: Documents on purchase and sale, material consumption standards, unit cost prices, property tax rates, brokerage fees, land use fees, discount rates, etc.
+ Legal documents of the State and local authorities related to land use rights, ownership of construction works, regulations on purposes, rights and lease terms... In general, the appraiser must fully collect legal documents affecting the right to exploit the benefits of real estate.
+ General documents on economics, politics, culture and society, such as: Rental price index, real estate price index, State policies on housing for low-income people, real estate tax, changes in planning and urbanization, State control over the real estate market, Government negotiation ability on agricultural export quotas, tourism prospects...
These sources of information can be obtained from professional agencies, international organizations, banks, credit rating companies, research institutes, surveys of private organizations or the Government. It helps the appraiser to review and analyze market dynamics and point out inevitable limitations that affect the valuation results.
+ Check the reliability and keep the information confidential.
- Step 4: Analyze documents and estimate value.
* Document analysis: Based on existing documents, it is necessary to conduct the following types of analysis:
+ Market analysis: The purpose of market analysis is to identify and evaluate market factors that affect the value of the asset to be valued.
+ Asset analysis: The purpose of asset analysis is to clearly identify
The main characteristics and criteria of the subject property that affect its value.
+ Comparative analysis: The purpose of this analysis is to select and set standards for implementing appropriate adjustment and comparison methods and techniques for each evidentiary transaction.
+ Analyze the best and most effective use.
* Estimated value:
+ The above analysis is the basis for the appraiser to determine which valuation method is the main one and which valuation methods are supplementary or reference. When choosing, it is necessary to evaluate the reasonableness, advantages and limitations of each method.
+ To choose the main method, it is necessary to base on: The properties of the property, the ability to use market data, the purpose and the main valuation principles applied. The appraiser can apply one or more valuation methods.
- Step 5: Prepare valuation report.
The purpose of this step is to ensure that the valuation results and conclusions are communicated effectively to users of the information, avoiding possible misunderstandings. To achieve this purpose, the valuation report must be presented in a clear, complete, logical and systematic manner regarding the assumptions, data, analysis, results and conclusions.
- Step 6: Valuation report.
* Requirements for valuation report:
+ The value of the asset is the ultimate goal of valuation. However, in fact, it is only a direct or indirect estimate based on the analysis of market data. Therefore, to help customers use information effectively, have a comprehensive, objective view, not rigidly and mechanically based only on calculated numbers, the requirement for reporting is not to stop at numbers and conclusions, but requires a truly objective presentation, analysis, and assessment of the limitations of information, data sources, and subjective factors of the appraiser that affect the valuation results.
+ A valuation report is usually the result of a consulting service contract, it is one of the important legal bases for
protect the interests of the appraiser and the interests of the client. Therefore, the contents presented in the valuation report must also clearly and fully demonstrate the requirements signed in the valuation contract.
* Contents of valuation report:
The content of the valuation report depends on the purpose of the valuation work. The level of specificity or detail depends on the terms specified in the contract with the customer. However, to meet the above requirements, a written valuation report must fully present the following contents:
1. State the exact objective of the valuation.
2. Accurately describe the property being appraised.
3. Estimated value period.
4. Clearly state the source of the documents used, illustrative figures and analysis.
5. Present in a reasonable and clear manner the accepted valuation methods and the analytical techniques used in each method.
6. Clear statement of the estimated value of the property.
7. Any limitations or reservations attached to the estimate:
+ Limitations of the assumptions and assumed conditions that affect the conclusion.
+ Limitations in the ability to conduct field investigations.
+ Possible questions and recommendations for further investigation, or deferral of valuation until clear information is available.
8. Conflicts and responsibilities of users of valuation information:
+ Contradictions between appraisal standards and customer requirements.
+ Requirements on information confidentiality to ensure the rights and responsibilities of parties using valuation information.
+ Confirm whether the report is provided in writing or orally. If the client requests an oral report, the valuer should request written confirmation of that advice.
+ Valuation reports also need to be kept for a certain period of time.
1.4. ASSET VALUATION ACTIVITIES
1.4.1. The role of asset valuation activities
Asset valuation is an essential activity in the economy and in the market economy it is specialized and developed into a branch of the financial services industry. The important role of asset valuation in the market economy is shown through the following points:
- Asset valuation is a necessary activity for the operation of a market economy, and can be considered the center of all economic activities. Because everything related to business activities is affected by the concept of value, and valuation is to determine the value of assets in the market, which is the basis for making decisions.
- Asset valuation helps market participants make the right decisions in asset transactions (buying, selling, investing, leasing, insuring, mortgaging, etc.). Valuation services help sellers determine the selling price of their assets, help tenants determine the annual rent, help lenders receiving mortgages determine the correct value of the collateral and the appropriate loan amount, etc.
- Asset valuation activities not only play an important role for market participants, but also play a very important role in implementing the state's economic management function. State valuation and price appraisal activities are an important tool to form price frameworks to serve state management of industries, fields, and market areas of the economy, for example: Real estate valuation close to market prices helps the taxation of land use rights transfer, land use tax, etc. to be carried out smoothly; or when equitizing state-owned enterprises, if the value of land and state assets is determined accurately close to market prices, it will avoid the loss of state budget, etc.
Nowadays, in the modern economy, the demand for valuation services is increasing in both the public and private sectors, which confirms the growing role of valuation and valuation activities.
1.4.2. Levels of asset valuation activities
In the modern market economy, the division of social labor is increasingly deepening and its inevitable result is the emergence of new occupations. Professional asset valuation has also become a service industry, enriching financial services in the market and is called the valuation profession.
It has been proven that a job becomes a career when it meets the following three conditions:
(i) That job is needed by everyone, but people cannot do it themselves or can do it but not effectively, or do not have enough time to do it, so people are willing to pay those who can do the job well;
(ii) That job requires high expertise, without expertise it is impossible to do well, and people only pay those who are recognized by society as having professional competence (having methods and secrets to complete the job in the fastest and most effective way) - professional competence is the basis for forming professionalism;
(iii) There are organizations that gather people doing that job. These organizations are both professional organizations and organizations with legal obligations to ensure the reputation of the profession.
Asset valuation has existed for a long time in history, since the emergence of commodity production, however, the valuation profession only began in the 1970s with the emergence of professional valuation organizations. Asset valuation takes place everywhere in the economy at different levels, is carried out by many different entities and serves many different purposes, and can be divided into three levels:
- First level - self-valuation: Determining the value of ordinary goods does not require the use of professional valuation services, market participants (owners, users, investors of assets) face the necessity and requirement of self-valuation of assets to make their own decisions. However, self-valuation will not be advantageous if these people do not have enough necessary information (information status is uncertain).
market-based), or limited skills and capabilities. In many cases, especially when third parties are involved, professional valuation is necessary.
- Level 2 - Real Estate Professionals: Real estate sellers, investors, distributors, builders, property managers, these people are not professional appraisers but they have to deal with real estate issues as part of their job. They are often asked for their opinion on the value of real estate and they give their opinion based on their level of expertise. Therefore, they must understand their limitations to know when they should ask for the help of a professional appraiser.
- Level 3 - professional valuers: In most countries, professional valuers are those who have the necessary capacity and qualifications, are properly trained (have a practice certificate), are appointed and belong to professional valuation organizations, they are registered valuers, sworn valuers, approved valuers. Professional valuer activities can be divided into two areas:
+ Public area valuer: Compensation valuation, land tax, income tax, government debt, other legal valuations.
+ Private sector appraisers: Valuations for purchases and sales, mortgage lending, feasibility analyses, land development, financial statements, and other appraisals.
Professional valuers are qualified and competent to practice valuation in all property matters, for all purposes. Such services are also performed on request as expert witnesses in courts.
Valuers also work in conjunction with legal advisors, inspectors, city planners and developers, providing advice on development projects, economic issues of company building projects, company formation, etc.
Appraisers are also hired by governments to appraise property for taxation purposes…