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Frequently Asked Questions

Frequently Asked Questions

Frequently Asked Questions

» What is Appraisal?

“Appraisal” is the independent and unbiased appreciation of the possible value of an asset or real estate, real estate project or the rights and interests related to a property on a certain date.

» Who is an Appraiser?

Appraiser is a person who holds minimum bachelor’s degree in the fields such as engineering, business administration & economy, architecture, and city-region planning, which are closely related with the subject activities of the company. These people are employed by the Real Estate Appraisal Companies in order to appraise the rights and interests of a property related to a real estate project.

In order to license the appraisers, minimum 3 years experience is required in the field of real estate appraisal. According to the existing legal regulations; the Appraiser may not work in more than one company, against the principles of objectivity and independence, may not act in real estate commissioning activities, and may not behave contrary to the professional dignity.

» What are the ethics expected from the appraiser?
  • Independence and impartiality
    • Not diverting from the principle of impartiality, not discriminating, abstaining from prejudgment, not seeking his/her self interests.
  • Confidentiality and secrecy
    • He/she should obey to the principle of confidentiality of the works.
  • Integrity
    • The appraiser should be faithful to the principle of integrity during his relations with the end users of the service and with the people and organizations who contribute to the studies.
  • Conflict of interests
    • The expert should not allow for conflict of interest during the fulfillment of his assignment.
  • Adherence to Standards
    • The service quality should be based on international appraisal standards.
  • Competence
    • The appraiser should have the sufficient knowledge, ability and experience to fulfill the services. The appraiser should accept the works which are suitable for his/her competence, and he/she should not be misleading regarding his/her competences.
» Why are the Appraisals and Appraisal Reports Important?

In Turkey, in parallel to the development of the real estate sector; the increasing values of immovable properties in the economy, and with the approach of the Capital Markets Board of Turkey to protect the small investors; various factors such as the search for the “actual value”, and the re-structuring of the financial sector and value appraisal in the buy and share, transfer and barter of corporate properties have contributed to the development of this market. As a result of them all, new requirements have arisen in the market and the demand for specialized, qualified and reliable people and companies increased in the market. As a natural outcome of these developments, the reports that reflect the actual value of the assets gained an undisputable importance in the economic life.

» For which aims is appraisal carried out? Where is it used?
  • In order to determine the buy & sales prices during property transactions,
  • To estimate value for rentals,
  • When the properties are to be registered as guarantee for loan transactions,
  • To determine the value of the properties among the company’s interests (IAS)* for
    • Initial public offerings
    • Company mergers and acquisitions
    • Transactions subject to balance sheet keeping further to IAS
  • When fair share of properties is desired during the transfer of heritage,
  • When the best and most efficient use analyses of the properties are required,
  • For the comparison of revenues to expenditure and for the calculation of the present project value in a prospective project (in financial feasibility studies)
  • In insurance transactions,
  • For Sale & Lease Back transactions,
  • For fair value payment during eminent domain,
  • During the buy-sell, lease and re-evaluation of the properties included in Real Estate Investment Trusts (REIT), when receiving real estate mortgages, and to identify the accordance with the legal procedures during the beginning of the project,
  • When the listed companies buy or sell a property with a value higher than 5% of their paid-in capitals and when they deposit their own properties as real capital in another company,
  • During the value estimation of the credits of banks over TRY 1,000, for which the banks initiate execution proceedings
» What are the methods employed for appraisal?

Three different appraisal methods are applied in our country. These are; “Similar Sales Comparison-Market Value Approach”, “Cash Flow (Income Capitalization) Approach” and “Cost Formation Approach”.

Similar Sales Comparison – Market Value Approach: The comparison of the property, for which the appraisal is to be carried out, with the existing similar properties which were recently sold in the existing market, through suitable comparison actions and with various organizations on the sales prices are among the procedures which are followed up in this approach. They are compared within the scope of the criteria such as the identified similar sales, location, visibility, function use, size, zoning status and building coefficient; and the appraisal analyses are realized. Market value approach; this is the most preferred method if there are common and comparable similar sales.

Cost Formation Approach: In this method, the re-construction cost of an existing structure under the present economic conditions is considered as the basis in identifying the value of the property. In this approach, the value of the property is assumed as consisting of two separate physical features: the land and the buildings. In this method, it is assumed that the property has significant remaining economic lifetime expectancy. Therefore, it is considered that the value of the property would decrease in time as it would become out fashioned on functional and economic terms due to depreciation. In other words, it is assumed that the building value of an existing property could by no means be higher than that of a new construction.

The appraisal is carried out by adding the benefits or revenues held by an existing structure to its re-construction or replenishment cost, and then decreasing the depreciation from the total cost and finally by adding the land value. In this sense, the main principle of the cost formation can be explained as the usage value. The usage value is defined as, “Even if nobody demands a product or knows its value, a good always has a real value“.        

In the cost formation approach, the value of the property is identified by adding the new depreciated cost of the development to the land value.

Income Capitalization (Cash Flow) Approach:  In the income capitalization approach, the net revenue, vacancy, loss in collections and operating costs of the property for a certain operating period are analyzed. The appraiser capitalizes the potential future benefits and the brought net revenue of the property and identifies the present value. Two different methods are employed in the income capitalization approach. In direct capitalization; the value is obtained through dividing one year’s income to the revenue ratio or by multiplying it with the revenue coefficient. In the Discounted Cash Flow; the lump sum price is applied and reflected on the revenue model; the revenues are converted into the present value with an acceptable discount rate, and so the property’s value is calculated.

Some properties may require being evaluated with the consideration of a prospective development due to their characteristics. In that case, the net revenues to be obtained as a result of the development of the property are deducted from the costs to be spent for the development, and the net revenues are taken into account. Also considering the profitability rate of the contractor, the net present value of the property is calculated with an acceptable discount rate. The studies and analyses that form the basis for the value are reserved by the appraiser.

In the Market Analysis of the Property, both approaches are based on the following assumptions.

  • The existence of an available market for the type of the analyzed property is assumed in advance.
  • It is assumed that the buyers and sellers in this market are informed at a high level, and therefore the time is not an important factor.
  • It is assumed that the property remains in the market for a certain period of time with a certain sales and rent value.
  • It is assumed that the selected comparable examples have common basic characteristics with the subject property of the appraisal.
  • It is assumed in the price correction of the selected comparable examples that the present day’s socio-economic conditions and real estate properties are valid.
» What Are The Value Definitions?

Fair Market Value

The most probable cash transaction value if a property is bought by a willing buyer from a willing seller ; the value identified by the two parties in a time limit which is also valid for the appraisal  report (usually 12 months) on the condition that the parties are informed about all circumstances associated with the property.

The following issues are assumed as valid in such an appraisal study.

  • The buyer and the seller act sensibly and rationally.
  • The parties are fully informed on every issue related with the property and they act so as to obtain the maximum benefit for themselves.
  • A certain period is allowed for the sales of the property.
  • The payment is made in cash or with similar instruments in advance.
  • The financing during the buy & sell transaction of the property is carried out according to the interest rates in the market.

Orderly Liquidation Value
Orderly liquidation value is the cash liquid sales value which is believed to arise when the selling process of the property is to be announced and managed by a professional seller who knows that a reasonable period of time (3-6 months) should have been employed for the sale to maximize profits. In the orderly liquidation, the maximization of the value for each asset in a limited time frame is considered.

Forced Liquidation Value
Considering the forced sales conditions and the present day’s economic trends; this is the most probable cash value identified for the property. In addition to them, buyers with sufficient and suitable potential are to be identified for the formation of the competitive offers. In forced liquidation, the properties are sold as soon as possible. (1-3 Months)

Value in Use
The value of a property according to its current use, which ignores the alternative uses.

Active Enterprise Value
The cumulative sales value of entire tangible and intangible assets of an established and active enterprise, which is assumed to last indefinitely.

Investment Value
The peculiar value of a property for an investor or a group of investors depending on the individual investment conditions. This value is different than the common independent market value.

Tax Value
The value of a property on the tax records. The equivalent in Turkey is the value registered for the real estate tax.