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Urban Property Valuation
Urban property valuation is complex and requires expertise. International standards and local peculiarities play a crucial role. Would you like to learn more about the precise valuation of your property? Get in touch with our experts.
The urban property valuation is crucial for informed real estate decisions and takes specific urban factors such as building density and infrastructure into account.
In Germany, the comparative value, income value and asset value methods are legally recognized. The professional application of these methods can optimise the sale price by up to 5%.
International standards such as IVSC, TEGoVA and RICS are gaining importance, especially for international investments. The integration of international valuation methods can improve valuation accuracy and reduce erroneous decisions.
Basics of Property Valuation
The property valuation is of critical importance in the urban context as it forms the basis for many economic decisions. It is used to determine the market value of a property or real estate and is therefore essential for purchase, sale, mortgage, or tax purposes. Urban property valuation takes into account the specific conditions of urban locations, such as high building density, infrastructure, and types of use. In contrast to rural areas, factors such as proximity to public transport, shopping facilities, and cultural institutions play a greater role in the city.
The purpose of property valuation is diverse. It serves as a basis for real estate investments, setting rental prices, calculating taxes and fees, and granting bank loans. Accurate valuation helps to minimise risks and make informed decisions. Urban property valuation differs from other types of valuation by considering specific urban factors and applying special valuation methods tailored to the conditions in cities.
Overview of the German Valuation Market
The German valuation market is characterised by a multitude of legal foundations and guidelines. The most important foundation is the Real Estate Valuation Ordinance (ImmoWertV), which regulates the procedures for determining the market value of properties and real estate. The ImmoWertV sets the framework for the application of the comparison value method, the income value method, and the tangible asset value method. These procedures are legally recognised in Germany and are applied by appraisers and experts to ensure an objective and comprehensible valuation.
The significance of the ImmoWertV for legally compliant valuations is enormous. It ensures that valuations are transparent, comprehensible, and comparable. This is particularly important to avoid disputes and ensure fair treatment of all parties involved. The ImmoWertV serves as a basis for court proceedings and forms the basis for valuation in foreclosures and expropriations. A detailed examination of the legal foundations and guidelines is therefore essential to ensure a legally sound and well-founded urban property valuation. Our property valuation software supports you in this.
Overview of German Valuation Methods
In Germany, various valuation methods are used to determine the value of a plot of land or a property. The most common methods include the comparative value method, the income value method, and the asset value method. Each of these methods has its specific areas of application and methodological approaches.
Comparative Value Method
The Comparative Value Method is mainly used for condominiums and undeveloped land. Here, the value of the object to be valued is determined based on comparative prices of similar objects that have been sold in the past. The data sources for this method are generally the purchase price collections of expert committees. The comparison factors include the location, size, condition, and features of the objects, among other things. The comparative value method is particularly suitable when there are enough comparable objects available and when there is high market transparency. You can also find more information on the topic on Wikipedia.
Income Value Method
The Income Value Method is primarily applied to investment properties, i.e., properties that generate income through renting or leasing. The focus here is on determining the sustainably achievable annual net income. This is calculated by deducting operating costs from rental income. The value of the property is then obtained by capitalising the annual net income with a property-specific capitalisation rate. The income value method thus considers the future income of the property and is particularly relevant for investors who aim for a long-term return. Our information on international calculations could be helpful here.
Asset Value Method
The Asset Value Method is mainly used for special properties and non-profit objects where generating income is not the primary focus. Here, the value of the property is determined based on the construction costs of the building and the land value. The construction costs are reduced by age-related depreciation. The asset value method is particularly suitable when there are no comparable objects or income, and the value of the property is primarily determined by the substance.
International Valuation Methods
Besides German valuation methods, there are also a number of international methods used in urban land valuation. These methods are particularly relevant when foreign investors are active in the German real estate market or when comparability with international standards is required. The most important international valuation methods include the DCF method (Discounted Cash Flow), the Investment Method, the Profits Method, and the Costs Method.
DCF Method (Discounted Cash Flow)
The DCF Method is a dynamic valuation method where the future cash flows of a property are forecast and discounted to the present value. It considers both static (residual value) and dynamic (cash flows over a period of, for example, 10 years) components. A critical point in Germany is the lack of recognition by ImmoWertV, which limits its application to internal business analyses. The future of land values will be significantly influenced by such methods.
Investment Method
The Investment Method is similar to the German income value method but assumes an eternal annuity and dispenses with determining a residual value or land value. The accuracy heavily depends on the representation of current market rents. The formula Market Value = Annual Net Income x Factor (- acquisition costs) highlights the importance of an exact capitalisation factor. More information can be found at Juhn.com.
Profits Method
The Profits Method is specifically applied to leased properties, such as hotels and restaurants. The valuation is based on operating income and requires special expertise due to the uniqueness of these objects and the limited comparative data.
Costs Method
The Costs Method is comparable to the German asset value method and is mainly applied to non-profit properties. It is particularly relevant for international investors.
IVSC (International Valuation Standards Council)
The IVSC establishes International Valuation Standards (IVS), promoting consistency and professionalism. The IVS are principles-based and developed through public consultations with global experts. These standards are applied in over 100 countries. The IVSC has over 200 member organisations in 137 countries, expanding especially in Asia. Main activities include setting standards, promoting dialogue, and providing resources. The latest IVS PDFs are available after registration, with terms of use preventing unauthorised distribution. The IVSC offers the opportunity to join a global network and sign up for a mailing list. More information can be found on the IVSC website.
Establishing International Valuation Standards (IVS)
The IVS serve as a global benchmark for asset valuation, ensuring valuations are transparent, consistent, and comparable. They cover a variety of valuation areas, including real estate, businesses, intangible assets, and financial instruments. The standards are regularly revised and updated to reflect changing market conditions and the latest developments in valuation practice.
Role and Activities of the IVSC
The IVSC plays a crucial role in promoting professionalism and integrity in the valuation industry. It works closely with national and international organisations to promote the application of the IVS and improve the quality of valuations worldwide. The IVSC also offers training and certifications to enhance the competence of valuers and boost confidence in valuation results.
TEGoVA (The European Group of Valuers' Associations)
TEGoVA unifies European valuation standards and has a significant influence on European real estate valuation. TEGoVA brings together 76 national valuer associations from 40 countries, representing 70,000 qualified valuers. The upcoming Spring General Meeting in The Hague (08-10 May 2025) provides an important opportunity for networking and strategic alignment within the valuation community. The introduction of EVS 2025, synchronised with EU law, underscores TEGoVA's commitment to compliance and standardisation. The availability of 'EVS 2025 - EVGN 4 VALUATION AND AGRICULTURAL PROPERTY' indicates a focused emphasis on the valuation of agricultural property, an area often requiring special expertise. Further information can be found on the TEGoVA website.
Unifying European Valuation Standards
The EVS (European Valuation Standards) are a comprehensive set of rules establishing the principles and procedures for asset valuation in Europe. They serve as a basis for appraising reports and aim to ensure valuations are transparent, understandable, and comparable. The EVS are regularly revised and updated by TEGoVA to reflect changing market conditions and the latest advancements in valuation practice.
Current Developments and Initiatives of TEGoVA
The publication of the European Plant, Machinery & Equipment Valuation Standards (EVS-PME) and the emphasis on convergence in PME valuation across Europe, including methodology, reporting, and valuation approaches, indicate greater consistency and best practices in this sector. Meetings in Madrid and London point to active engagement with other key organisations (AEVIU, CGATE, CSCAE, IVSC, RICS) to foster international cooperation and harmonisation of valuation practices.
RICS (Royal Institution of Chartered Surveyors)
The RICS plays a significant role in the international context of real estate valuation. RICS sets high standards for the qualification and conduct of its members, contributing to the professionalisation of the industry. The RICS Valuation – Global Standards are a globally recognised framework for asset valuation. These standards are regularly updated and tailored to changing market conditions. The RICS Valuation – Global Standards provide a comprehensive foundation for the valuation of real estate and other assets.
Harmonised Definition of Market Value
The harmonised definition of Market Value according to IVSC/TEGoVA/RICS emphasises an arm’s-length transaction between willing parties with appropriate marketing and due diligence. This definition aligns with Austrian law (Property Valuation Act, Banking Act). The market value is defined as the estimated amount for which an asset should be sold on the valuation date between a willing buyer and a willing seller in an appropriate transaction, after adequate marketing has taken place, and both parties have acted knowledgeably, prudently, and without compulsion.
IVSC/TEGoVA/RICS Definition
The IVSC/TEGoVA/RICS definition of market value places great importance on the objectivity and independence of the valuation. It ensures that the value of an asset is not influenced by personal relationships or other specific interests. The definition also highlights the importance of thorough due diligence to incorporate all relevant information and ensure an informed valuation.
Open Market Value (OMV)
The Open Market Value (OMV) involves specific assumptions about the marketing period and market conditions and excludes special interests. OMV is a concept used in international valuation practice to determine the value of an asset under the assumption of an open and transparent market. It considers the specific market circumstances and the expectations of market participants.
Specific Assumptions about Marketing Period and Market Conditions
The specific assumptions about the marketing period and market conditions are crucial for determining the OMV. They take into account the time required to sell an asset on the market, as well as the current and expected market conditions. Excluding special interests ensures that the OMV is not influenced by personal relationships or other specific interests.
European Mortgage Lending Value (EMLV)
The European Mortgage Lending Value (EMLV) emphasises a cautious assessment of future marketability, the exclusion of speculative elements, and the consideration of long-term aspects. The EMLV is a concept specifically developed for the valuation of property in connection with mortgage loans. It aims to ensure that the value of the property is sufficient to secure the loan and that banks are not taking excessive risks.
Cautious Assessment of Future Marketability
The cautious assessment of future marketability is a central element of the EMLV. It considers the long-term trends and developments in the property market and ensures that the value of the property remains stable in the future. The elimination of speculative elements and the consideration of long-term aspects help to minimise the risk of value loss and ensure the stability of the financial system.
Legal and Practical Restrictions
The application of international methods in Germany faces legal and practical restrictions. There is a lack of comprehensive legal basis, which is why ImmoWertV-compliant methods (income, cost, and comparison approaches) are given priority. International valuation methods are not routinely recognised in Germany and have no legal validity in German courts. Therefore, it is crucial to rely on the methods permitted by the ImmoWertV to achieve legally sound valuations.
Lack of Legal Basis in Germany
The absence of a legal framework for international valuation methods in Germany means that these methods can generally only be used for internal purposes or for the valuation of properties in an international context. For the preparation of reports to be used in German courts or by authorities, the methods approved by the ImmoWertV must be applied. This represents a challenge for international investors who may be familiar with other valuation methods.
Adapting International Methods to the German Market
To adapt international methods to the German market, it is important to consider local specifics and market conditions. This requires expertise and experience in the German real estate market as well as a deep understanding of international valuation methods. Adaptation may involve accounting for specific German laws and regulations, adjusting capitalization rates to the German interest level, or considering local market trends. Property valuation thus requires comprehensive expertise.
Consideration of Local Specifics and Market Conditions
Considering local specifics and market conditions is crucial for a realistic and reliable valuation. This includes, for example, consideration of the property's location, infrastructure, type of use, building fabric, features, and legal conditions. Current and expected market trends, such as the development of rental prices and demand for properties, must also be taken into account.
Opportunities through International Investment
The increasing demand for international valuations offers opportunities through international investment. This is particularly important for institutional investors who require a standardised and internationally comparable valuation system. Integrating international valuation methods into German valuation practices can help make the German property market more attractive to international investors and enhance transparency and comparability of valuations.
Increasing Demand for International Valuations
The increasing demand for international valuations is due to the growing globalization of property markets and the rising number of international investors. These investors need valuations that comply with international standards and enable comparability with other property markets. Integrating international valuation methods into German valuation practices can help meet this need and make the German property market more attractive to international investors.
Case Studies on the Application of the DCF Method in Germany
The DCF Method is increasingly applied in Germany, particularly for the valuation of office buildings and commercial properties. Case studies show that the DCF method allows for a detailed analysis of future cash flows, thereby providing a solid basis for investment decisions. Sensitivity analysis and risk assessment are essential components of the valuation process.
Examples of Office Buildings and Commercial Properties
In valuing office buildings and commercial properties, the DCF method enables a detailed forecast of future rental income, operating costs, and investments. By discounting these cash flows to their present value, the property's value can be determined. Sensitivity analysis allows for the examination of the impacts of changes in assumptions, such as rental rates or vacancy rates, on the property's value. Risk assessment considers uncertainties associated with future cash flows and provides a realistic evaluation of the investment risk.
Application of the Investment Method in Rental Properties
The Investment Method is applied in rental properties, taking into account over-rent and under-rent. Adapting to German rental conditions is crucial here. The Investment Method is an internationally recognised valuation method, particularly suitable for evaluating income-generating properties. It considers the future returns of the property and enables a realistic estimation of the investment's value.
Consideration of Over-Rent and Under-Rent
When applying the Investment Method, it is important to consider over-rent and under-rent. Over-rent occurs when the actual rent exceeds the market rent, while under-rent occurs when the actual rent is below the market rent. Considering these factors is crucial for a realistic property valuation. Adapting to German rental conditions requires a deep understanding of German rental law and local market conditions.
Quality Assurance and Transparency
An objective and comprehensive property description is essential for the quality assurance and transparency of the valuation. Multidisciplinary teams are required for complex valuations to consider all relevant aspects. Quality assurance and transparency are crucial to ensure trust in the valuation results and facilitate informed decisions.
Objective and Comprehensive Property Description
An objective and comprehensive property description forms the foundation for a realistic and reliable valuation. It includes all relevant information about the property, such as location, size, building condition, facilities, usage type, and legal frameworks. The property description should be transparent and comprehensible to ensure trust in the valuation results.
Necessity of Expanding the Training Curriculum
The incorporation of international assessment methods into the training of real estate appraisers is essential. The expansion of the training curriculum is necessary to meet the demands of the globalised real estate market. Real estate appraisers need the ability to apply international assessment methods and compare the results with German appraisal methods. This requires comprehensive training in international standards and procedures.
Integration of International Assessment Methods into Real Estate Appraisers' Training
The integration of international assessment methods into the training of real estate appraisers can be achieved by including corresponding modules in the curricula of universities and technical colleges. Conducting seminars and workshops that convey international standards and procedures is also sensible. The training should impart both theoretical and practical knowledge to prepare real estate appraisers for the demands of the globalised real estate market.
Further Education Offers and Certifications
Specialising in international standards (IVSC, TEGoVA, RICS) through further education offers and certifications is of great importance. This specialisation allows real estate appraisers to enhance their competencies in the field of international valuation and distinguish themselves from other appraisers. Certifications serve as proof of the acquired knowledge and skills and increase confidence in the valuation results.
Specialising in International Standards (IVSC, TEGoVA, RICS)
Specialising in international standards can be achieved by participating in further training courses and obtaining certifications. Various organisations offer further training courses and certifications in the field of international valuation, such as IVSC, TEGoVA and RICS. Participation in these courses and obtaining certifications usually requires comprehensive training in real estate valuation as well as practical experience.
Importance of Interdisciplinary Collaboration
The interdisciplinary collaboration with financial experts and lawyers is crucial to consider all relevant aspects of valuation. Collaboration with financial experts enables realistic assessment of financial aspects of valuation, such as capitalisation rates and cash flows. Collaboration with lawyers enables consideration of the legal framework of valuation, such as lease agreements and building regulations.
Collaboration with Financial Experts and Lawyers
Collaboration with financial experts and lawyers can occur through the formation of interdisciplinary teams. These teams should consist of experts from the fields of real estate valuation, finance, and law. Collaboration within these teams makes it possible to consider all relevant aspects of valuation and make well-informed decisions.
Trends and Developments
The digitalisation and automation of valuation processes as well as the significance of Big Data and artificial intelligence shape the trends and developments in urban property valuation. Digitalisation enables valuation processes to become more efficient and transparent. Automation allows routine tasks to be conducted automatically, relieving the assessors of time-consuming activities. Big Data and artificial intelligence make it possible to analyse large volumes of data and identify patterns relevant to valuation.
Digitalisation and Automation of Valuation Processes
Digitalisation and automation of valuation processes can be achieved through the use of specialised software and online platforms. These tools facilitate the collection, analysis, and visualisation of data. The creation of assessments can also be automated through software. Digitalisation and automation of valuation processes help to increase the efficiency and transparency of valuations and reduce costs.
Outlook on New Valuation Approaches
The consideration of ESG criteria (Environmental, Social, Governance) as well as the sustainability assessment of properties are new valuation approaches that will gain importance in the future. ESG criteria consider the environmental, social, and corporate aspects of a property. The sustainability assessment of properties evaluates the impact of a property on the environment and society. These new valuation approaches contribute to promoting sustainability in real estate and considering the environmental and social impacts of property investments.
Consideration of ESG Criteria (Environmental, Social, Governance)
ESG criteria can be considered by integrating relevant metrics into valuations. These metrics can include energy consumption, CO2 emissions, water usage, the social responsibility of the owner, and the corporate governance of the company. Considering ESG criteria helps to promote the sustainability of properties and consider the environmental and social impacts of property investments.
Conclusion: The Importance of Adaptability and Expertise
The continuous development of valuation methods and the key role of assessors in making informed decisions underline the importance of adaptability and expertise. Valuation methods need to be continuously developed to meet changing market conditions and new requirements. Assessors play a key role in applying valuation methods and interpreting results. They must have a solid education and experience to make informed decisions.
Continuous Development of Valuation Methods
The continuous development of valuation methods requires close cooperation between science and practice. Science provides the theoretical foundations for valuation methods, while practice offers experiences and insights from applying the methods. Cooperation between science and practice helps to improve valuation methods and adapt to changing market conditions.
Urban property valuation is a complex field that requires continuous education and adaptation. However, with the right methods and solid expertise, you can optimally determine the value of your urban property and make informed decisions. At Auctoa, we support you with our expertise and innovative solutions. Contact us today via our contact form to learn more about our services and how we can help you maximise the potential of your property.
The knowledge of international valuation methods is of great importance for the German market. The need to adapt to global trends requires that German property valuers have the necessary knowledge and skills. Only in this way can they meet the demands of the global real estate market and produce sound valuations that comply with international standards. The international aspects of property valuation are thoroughly covered in this document.
The further harmonisation of valuation standards and the increasing acceptance of international methods in Germany are important developments for the future. It is expected that international valuation methods will play a greater role in the future and that German property valuers will need to continue their education accordingly. The IVSC website offers further information on international valuation standards.
Urban property valuation is a complex field, encompassing both traditional and international methods. By combining state-of-the-art AI and human expertise, Auctoa offers precise and market-appropriate valuations for property investors, developers, and owners. The integration of real-time data, ensuring data quality, and continuous improvement of AI models are crucial to maximising the value of your urban space. Are you ready to optimise the value of your urban property? Learn more about our services and contact us today here to schedule a personalised consultation.
The Federal Institute for Research on Building, Urban Affairs and Spatial Development (BBSR) offers a publication on land value appraisal in urban redevelopment.
Wikipedia provides a general overview of the topic of land value appraisal.
The German Association of Cities analyses the residential property market in 2023.
The Landesbank Baden-Württemberg (LBBW) provides an assessment of the German real estate market in 2025.
What are the key factors to consider in urban property valuation?
Location, building density, infrastructure, types of use, proximity to public transport, shopping facilities, and cultural amenities are crucial in urban property valuation. These factors significantly influence the market value.
Which valuation methods are legally recognised in Germany?
In Germany, the comparison method, the income method, and the cost method are legally recognised. These methods are governed by the Real Estate Valuation Regulation (ImmoWertV) and are applied by appraisers.
When is the comparison method used?
The comparison method is mainly used for freehold flats and undeveloped land. Here, the value is determined based on comparison prices of similar properties.
For which properties is the income method suitable?
The income method is primarily applied to revenue properties, that is, properties that generate income through rental or leasing. The focus is on determining the sustainable achievable annual net income.
When is the cost method the right choice?
The cost method is used mainly for special properties and non-profit properties, where income generation is not the main focus. Here, the value is determined based on the construction costs of the building and the land value.
What role do international valuation standards like IVSC, TEGoVA, and RICS play?
IVSC, TEGoVA, and RICS set international valuation standards that promote consistency and professionalism. These standards are particularly relevant when foreign investors are active in the German real estate market or when comparability with international standards is required.
What is the DCF method and when is it applied?
The DCF method (Discounted Cash Flow) is a dynamic valuation method in which the future cash flows of a property are forecasted and discounted to the present value. It is increasingly used for valuing office buildings and commercial properties.
What are the legal limitations of applying international valuation methods in Germany?
International valuation methods are not standardly recognised in Germany and do not have legal validity before German courts. Therefore, it is crucial to rely on the methods approved in the ImmoWertV to obtain legally sound valuations.
