will bring high income, increasing the value of the real estate. Technical factors such as size, shape, area, frontage width, depth and location of the real estate will affect the value of the real estate, partly due to the process of exploiting and using the real estate and partly due to the psychology of the user, so it will affect the value of the real estate.
Real estate with good technical conditions, reasonable size, and squareness always have higher value than other plots of land. Real estate is a special asset, subject to strict management by law, so legal factors will determine the legality of real estate in use. Therefore, this is also a factor that greatly affects the value of real estate. Legality is expressed through legal documents, State regulations on ownership and use of real estate. Therefore, a real estate with full legal documents will have higher value than other real estate with the same location and size but without legal documents, or lacking conditions to ensure the full exercise of the rights of the owner and user of the real estate. During the valuation process, the valuer needs to grasp the legal information of the real estate to determine the value, on the basis of determining the level of risk and costs to be incurred when there is no full legal basis. Usually, risks that can occur when there are no legal documents are cases where the state reclaims land to implement planning, when disputes arise or when there are costs related to completing documents.
Land rent and location advantages of real estate: Due to the characteristics of real estate, the location is fixed. Each location will bring a certain amount of land rent. Therefore, the value of real estate will depend on the land rent obtained from each location. The location of real estate is analyzed in terms of absolute location and relative location, in which the relative location is the most important, showing the distance from the real estate to the centers, public service points, entertainment areas, commercial centers... The more convenient the location of the real estate, the higher the income stream, so the price
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The higher the value of real estate. In addition, due to the fixed location and being attached to each specific location, the value of real estate is also clearly affected by regional and area factors. These are factors: nature, economic conditions, society, environmental conditions associated with each specific region and area. Thus, in each region and area, a different level of real estate value is formed associated with regional and area factors. There are fixed regional factors, but there are also changing regional factors that affect real estate value. The appraiser needs to assess the impact of regional factors to determine different value zones in each specific location area. This is one of the important bases when building market land prices for regions and areas to serve real estate valuation in general and mortgage real estate valuation in commercial banks in particular.
The current profitability and development prospects of the economy, especially the development prospects of the real estate sector, are also objective factors affecting real estate value. The current income stream of real estate depends on the development of the economy. If the economy develops rapidly, the profitability will increase rapidly, leading to the demand for investment and development of real estate, that is, increasing demand for real estate. Therefore, this is a basic factor that creates demand in the real estate market and increases the value of real estate. Therefore, when valuing real estate under different conditions and times corresponding to the development stages of the economy, the value of real estate will also be affected. In addition, the value of real estate is also affected by the field of real estate use. If the field of real estate use has the conditions and opportunities to develop, the value of those real estates will be higher than real estates used in other fields.
In addition, during the valuation process, real estate prices are also affected by other external factors such as market relations at the time of valuation and customer psychology. These factors will affect the behavior of
Customers participate in the market and thus will cause the price of real estate to fluctuate, thereby changing the view on the value of the real estate to be appraised.
Market relations are considered based on a number of aspects such as the balance of supply and demand of goods, the competitive nature and the common diversity of those goods on the market. When there is any imbalance in supply and demand of real estate goods at a certain time, it will cause real estate prices to fluctuate strongly. The trend of imbalance in supply and demand in the real estate market often occurs in developing regions or areas with the potential to develop. Therefore, the value of real estate in these areas will be strongly affected by the law of supply and demand and is often far from the real value of that real estate. One of the characteristics of the real estate market is that it is an imperfectly competitive market, even a monopoly market, due to the scarcity, individuality of goods and asymmetry of information. This leads to the price of real estate increasing and tending to fluctuate strongly. The goal of the appraiser is to determine the market value of real estate, factors that distort prices need to be adjusted appropriately. This adjustment depends on different valuation purposes. Depending on each valuation purpose, the valuer can consider selecting information, and eliminate factors that distort the market value of the property. Therefore, applying the appropriate valuation method is extremely important for the valuer.
Real estate is a special commodity, the use and exploitation of real estate, in addition to being based on the value of use, also depends largely on the psychological factors of customers. Therefore, there are real estates that are highly valued by this customer but are undervalued by another customer, and people call it psychological price. That is the price obtained from the customer's satisfaction when deciding to buy or sell real estate. Psychological factors affect
Factors affecting real estate prices must first satisfy and be generally evaluated according to social standards and concepts, such as feng shui, taboos in housing construction, etc.; historical factors such as risks and spiritual problems of previous real estate owners and users; psychological factors reflecting personal characteristics and social class and crowd psychology.
1.2.2. Valuation of mortgaged real estate in lending activities of commercial banks
1.2.2.1.Concept of mortgage real estate valuation
In the lending activities of banks, there are always risks due to many reasons, both objective and subjective, that make it difficult for banks to collect debts or are unable to collect. To minimize possible risks, banks, in addition to requiring customers to have collateral, need to determine the value of that collateral as a basis for determining the loan amount. Mortgage real estate valuation is understood as determining the specific value of mortgaged real estate in monetary form at a specific time, as a basis for determining the bank's loan amount based on the collateral being real estate . Mortgage real estate valuation is one of the important and indispensable steps in the lending process of commercial banks to determine the legality of real estate collateral and is the basis for giving a reasonable loan amount. Depending on the organizational structure and operations of each bank, valuation can be performed by the bank's credit department or independent valuation department, or an outside valuation organization can be hired.
Normally, banks will base on the recoverability of the property to determine.
Mortgage real estate value assessment. Specifically:
Mortgaged real estate value = Market value of real estate * real estate recovery rate
The recovery rate of real estate depends on the depreciation rate of the real estate, taking into account depreciation due to wear and tear, obsolescence, depreciation due to market factors, and the costs of repossessing the real estate in the event that the customer is unable to repay the debt.
To determine a reasonable real estate recovery rate in the process of valuing mortgaged real estate, the following issues must be noted:
Mortgaged real estate must be placed in conditions of underdeveloped and depressed market. This is a condition to ensure safety in credit activities using real estate as collateral. The main objective of mortgaged real estate valuation is to determine the total value of the mortgaged real estate if it is forced to sell the real estate. In this case, we cannot always put the real estate on the market at the most favorable time and in a favorable situation. Therefore, the valuer must carefully consider and decide the value of the real estate in the case of unfavorable or depressed market conditions. Mortgage valuation is the valuation of a loan in cases where the lender does not want to take on excessive risk.
In the mortgage valuation process, it is necessary to consider the mortgage conditions and the mortgage status of the customer, because these factors will affect the price of the real estate to be valued.
The objective of real estate valuation is to determine the market value of real estate. That is the price formed at the time of real estate transaction under the condition that the parties involved in the transaction have full information and time to choose and make decisions; the market is stable and less volatile; the transaction relationships are based on agreement, voluntary, without price coercion; the parties to the transaction act entirely on the basis of understanding and prudence. The market value of real estate is the main basis for the valuation of all types of assets. When all the above conditions are fully satisfied, the real estate price will be used to
as a reference basis for real estate on the market. However, in reality, there are many factors that affect the price of real estate, distorting the market value, also known as non-market value. Real estate prices will not reflect the true market value when violating the following conditions: there is coercion in the transaction; the buyer is the owner of a part; buying and selling between family members; transactions within the company; transactions of successful businesses; selling exclusive products; the buyer is holding the real estate; and selling jointly owned real estate. When encountering these cases, the appraiser needs to collect comparative information, adjust or eliminate inappropriate cases that cannot be included as a reference price for the target real estate.
1.2.2.2. The necessity of mortgage real estate valuation
Determining the correct value of mortgaged real estate is extremely necessary because it is an important basis for the Bank to offer reasonable loan levels, avoiding risks for the Bank and increasing competitiveness in the Bank's operations.
Real estate is a special commodity, the real estate market fluctuates constantly, it can increase suddenly but can also be quiet and "frozen". Therefore, the valuation of mortgaged real estate is very necessary for each Bank, ensuring safety and reducing risks.
For the valuation of mortgaged real estate, the loan is secured by the income of the real estate. Lenders only want to lend for a secured loan and minimize all possible risks in the transaction. Normally, the loan is secured by the value of the property being purchased, so in case the borrower cannot repay the debt, the value of the mortgaged property will be the basis to secure that loan.
Mortgaged real estate valuation is not only performed at the initial stage of borrowing capital but also must be considered in the stage of foreclosing the property in case the customer is unable to repay the debt. Because after mortgaging the real estate, the mortgagor still
The mortgaged real estate is used, during this time the mortgaged real estate is inevitably worn out and damaged. Before selling the mortgaged real estate, it must be appraised to determine whether the value of the real estate is sufficient to pay the debt or not. The customer also wants to know whether the value of the real estate is higher than the debt or not. If the property is not appraised and is put up for sale, it will cause damage to the customer as well as the Bank.
In addition, in the current integration conditions, fierce competition between domestic and foreign banks is requiring banks to change their business strategies. One of the changes is to improve the credit process and redefine the value of mortgaged real estate to attract customers. Moreover, the development trend of the real estate business in some countries in the world today is to strongly develop the secondary financial market segment such as the UK, the US, and Australia. Therefore, the valuation of mortgaged real estate is extremely important. Only when the mortgage value is determined to be equal to the market value, along with the legal policy system of the state, will it create conditions for the secondary real estate market to have the opportunity to develop.
1.2.2.3. Mortgage real estate valuation process
The valuation process is the sequential steps in the valuation process, starting from when the valuation specialist prepares to conduct the valuation work until the end of the work, that is, sending the valuation report to the customer. Each step in the process usually clearly states the content of the work to be performed, the time for each content of the work, the functional department and the staff responsible for performing the work. At each commercial bank, depending on the conditions and specific operations, there are regulations and steps in determining the value of real estate.
Typically, the mortgage real estate valuation process includes the following basic steps:
Identify the pricing problem
Pricing Plan
Data collection and analysis
Apply valuation methods to
Conduct target real estate valuation
Compare actual value and estimated value
Complete valuation report
Pricing Plan
Data collection and analysis
Diagram 1.1. Mortgage real estate valuation process
Step 1. Identify the pricing problem:
In this step, the appraiser needs to clearly identify the type of real estate being mortgaged for valuation, whether it is land, house or factory... Characteristics of the real estate such as location, economic, technical and legal characteristics of the real estate; target customers for mortgage loans.
Step 2. Plan valuation: Based on clearly identifying the type of real estate that needs to be valued and the characteristics of the real estate and customers, the valuation department needs to plan
Clear plan for valuation work: determine time, send staff to do valuation. Determine information and documents to be collected, reliable sources of information, and market data. Make a work program and schedule.
Step 3. Collect and analyze data
In this step, the appraiser needs to collect documents providing information about the target property. This information can be obtained from the client or through a field survey.
Collect documents as a basis for comparison, analysis, evaluation and adjustment such as: purchase and sale documents, material consumption standards, unit cost prices, property tax rates, brokerage fees, land use revenue, etc.
Collect legal documents of the state and local authorities related to land use rights, construction ownership rights, regulations on purposes, rights and lease terms... It is necessary to collect a complete system of legal documents that affect the right to exploit the benefits of real estate.
General documents on economics, politics, culture, society such as: economic development and growth, indicators such as GDP, CPI, inflation, real estate price index, State policies on housing policy, real estate tax policy, changes in planning and urbanization, State control over the real estate market
These sources of information can be obtained from specialized agencies, international organizations, banks, from investigations by private organizations or the Government. This information helps the valuer analyze market developments and provide factors affecting the valuation results.
Based on the collected documents and information, the appraiser needs to select the most reliable and appropriate information for the valuation of the target real estate for processing and analysis.
Step 4. Apply appropriate valuation methods to conduct valuation of target real estate.
The above analysis will be the basis for the appraiser to use appropriate valuation methods. In fact, there are many different methods for real estate valuation. However, a method that is recognized as basic, has a solid theoretical basis and is scientifically based is a method built on the basis of reviewing, analyzing and evaluating the impact of influencing factors and especially must fully and absolutely comply with the principles in valuation. In real estate valuation, there is no single correct method, only the most suitable method. To choose the main and most suitable method, it is necessary to rely on the properties of the property, the ability to use market data, the purpose and principles of valuation. The appraiser can apply one or more valuation methods, depending on different circumstances. Commonly used valuation methods: Comparison method, Cost method, profit method, Surplus value method (residual value), Investment method.
Step 5. Compare the actual value and the estimated value
After calculating the value of the property based on the calculation according to the valuation methods, the valuer needs to survey the actual market value to compare the accuracy of the value just valued. If there is a large deviation, adjustments can be made, and an official conclusion can be made about the price to be determined.
Step 6. Complete the valuation report, submit it to superiors for approval, and send it to customers and relevant departments.
The final step in the valuation process is for the valuer to complete a valuation report with all the necessary information showing the entire valuation process and submit it to the superior for approval. If there is no change in the superior's decision, the valuation value stated in the valuation report will be considered the basis for the credit granting process for the customer.
1.2.2.4. Methods of valuation of mortgaged real estate
Real estate valuation is carried out with many different types of real estate and for many different purposes. There is a valuation method that is suitable for this type of real estate but not suitable for another type of real estate or suitable for one valuation purpose but not suitable for another. Therefore, there are many different valuation methods and each method has different characteristics and implementation methods. They can be used independently of each other or can also be combined with each other to help the valuer determine a reasonable price. According to author Doan Van Truong, in real estate valuation, there is no method that is called the most correct, the most accurate, but only the most suitable method, so the task of the valuer is to choose for himself a valuation method that is most suitable for each type of real estate as well as according to each requirement and purpose of the valuation work [49].
For the current mortgage real estate valuation, the most commonly used methods are still the comparison method and the cost method. Within the framework of the thesis, the author will analyze three basic methods: the comparison method, the cost method and the investment method. The remaining two methods, profit and surplus, are derivative methods of the above three methods.
Comparative method
The comparison method is a valuation method that directly compares the target property with similar properties that have been sold on the market. This method is based on the theory that the market value of a property is closely related to the value of similar comparable properties that have been bought and sold on the market.
When comparing similar properties sold on the market with the target property , the following requirements must be met:
- The properties used for comparison must be similar or nearly similar to the properties to be valued ; they must be of a comparable nature.
homogeneous − buildings, apartment buildings, buildings of the same type, separate houses, offices, warehouses on one floor, office blocks , shop blocks, vacant lots. In the absence of sufficient documentation of comparable properties for sale, minor adjustments may be necessary to bring the value of the comparable properties as close as possible to the value of the properties being appraised.
Only the results of real estate transactions agreed upon on the basis of market prices and relevant to the time of valuation or the time of closing should be used.
nearest point
The information collected must be checked and validated. This method does not have a fixed formula or model but is completely based on market information , so it requires information collection to be extremely accurate and of high quality and placed in relatively stable market conditions .
stable, without sharp fluctuations, for example - price shocks, or during economic crises.
Steps to conduct the comparison method
In reality, no two or more properties are exactly the same, and their values tend to change over time. Therefore, in order to make comparisons, the appraiser needs to collect current market transactions of properties that are similar or relatively similar to the target price. Then conduct a purchase price analysis, analyze the transaction values and make the necessary adjustments to find an appropriate price for the target property. The valuation process can be carried out as follows :
B − Step 1: Identify target real estate
- Determine factors related to location and facade of target real estate.
- Research information and techniques about real estate such as : area, width, shape, structure, age, construction time, exploitation ability, and usage.