German valuation: review of methods and legal framework
| DOI | https://doi.org/10.1108/14635781211206896 |
| Date | 02 March 2012 |
| Pages | 145-158 |
| Published date | 02 March 2012 |
| Author | Tobias Schnaidt,Steffen Sebastian |
| Subject Matter | Property management & built environment |
German valuation: review
of methods and legal framework
Tobias Schnaidt and Steffen Sebastian
IREBS International Business School, University of Regensburg,
Regensburg, Germany
Abstract
Purpose – There is a continuing discussion about whether German valuation methods are inaccurate
and inferior to the British standard, and the enduring efforts for a European and internationally
standardised valuation method and value definitions intensify this discussion. The German valuation
system is said to lead to valuations which do not reflect actual market conditions and excessive
smoothing. Not surprisingly, German surveyors usually disagree and claim that the German valuation
approach, with its sustainable rental value, fulfils not only its purpose but is more transparent and
thus superior to the approach usually applied in UK. The purpose of this paper is to discuss the
recently adjusted German valuation methods.
Design/methodology/approach – The paper analyses the German valuation methods and
highlights the predominant differences to the British valuation standards.
Findings – The paper shows that the discussed valuation methods should lead to comparable
results. The legal framework of the German valuation approaches can therefore not be blamed for any
of the observed empirical phenomenon.
Originality/value – The paper discusses the recently adjusted German valuation methods.
Keywords Germany,Market value, Property,Standardization,Smoothing methods,Valuation methods,
Valuation standards , Open market value
Paper type Research paper
Introduction
For several decades there is an ongoing discussion about the accuracy of German
property valuation methods, especially in comparison to Anglo-Saxon or British
methods. The mayor criticism is that the German valuation methods are too static, do
not reflect the actual market value and thus result in inordinate smoothing. The British
valuations methods[1] are said to be more dynamic and in line with the market. The
debate has been intensified due to the increasing demand for international valuation
standards, European harmonisation efforts and the question whether to use the Red
Book of the Royal Institution of Chartered Surveyors (RICS), the recommendations of
The European Group of Valuers Associations (TEGoVA) or retain national standards.
Cross-border investments and international real estate companies which need to apply
International Financial Reporting Standards (IFRS) lead to the question whether there
is an international valuation standard that can be generally applied or not.
Criticism on the German valuation system is mainly based upon valuation issues of
the German open-ended funds; especially after the crisis in 2005-2006. Crosby (2007)
discusses the valuation process of the German open-ended funds and finds that there is
no direct evidence that the property funds were over-valued. However, he finds that the
German valuation process makes an over-valuation in a recession more likely than in
other countries. He further states that the valuations in UK are far more objective and
conceptually correct than in Germany.
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1463-578X.htm
German
valuation
145
Journal of Property Investment
& Finance
Vol. 30 No. 2, 2012
pp. 145-158
qEmerald Group Publishing Limited
1463-578X
DOI 10.1108/14635781211206896
To continue reading
Request your trial