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Chaika Anton

Institute of Mining and Geology

Department of Geoinformatics and Geodesy

Speciality "Land surveying and cadastre"

Mass valuation of the urban land in Ukraine

Scientific adviser: PhD.: Germonova E.

Content

Relevance

The object of the work and the tasks of the research

Mass valuation patterns

Foreign experience in the development of mass valuation of the municipal land

Identification of the most important demand and supply factors

Conclusion

Links

Relevance

Land valuation is an integral part of municipal land management. It is leading hand in building and realization of the municipal land tenure regulation [1].

In market economy, one usually divides land and estate valuation into two coherent, but different types, which are known as individual estate valuation, or valuation of a single estate object, and mass valuation of the estate objects [2].

Recently there is a world tendency to switch to the mass valuation of the municipal lands. Mass valuation is a systematic valuation (in money means) of the groups of estate objects based on a certain date by using standard procedures and statistic analysis. Mass valuation may be required if a big number of estate objects should be evaluated or in case of minimum term for evaluation. In such cases individual valuation becomes problematic.

Market informational basis for the mass municipal land valuation is, as a rule, following data:

- data about sales of land for individual house-building;

- data about sales of collective gardening and farmland;

- data about sales and rent of apartments, garages and various objects of commercial estate [3].

Mass valuation option is acceptable both for the customer and appraiser. For the customer it will cost considerably cheaper. For the appraiser method of mass valuation of estate makes the valuation process easier, as it has organic and automated approach.

Significant contribution into the study of the methods and development of the patterns and algorithms of mass valuation of the estate value has been made with the scientific works and articles of the domestic and foreign scientists: A.I. Drapykovskiy, I.B. Ivanova, Y.P. Gubar, M.G. Kryvobokov (Ukraine); V.P. Fedorov, O.M. Pakhomova, N.V. Bulychyova, V.N. Koshman, O.A. Zaraiskaya, N.S. Kryuchkova, N.V. Kalynina, S.A. Gulyaeyva (Russia); P. Gloudemans (Sweden).

For the present moment, there is no common procedure in Ukraine for mass valuation of the municipal lands, therefore the most important task is the analysis of the most advanced world patterns of mass valuation of municipal lands for the purpose of their application and distribution in Ukraine and building of the pattern of mass valuation of municipal lands by the example of the biggest city of Donetsk.

The object of the work: to discover advantages of the procedures and methods of mass valuation of municipal lands in various countries for the purpose of their application and distribution in Ukraine, as well as to analyze disadvantages present in these procedures and methods.

Tasks of the research:

Analysis of the most advanced world patterns of general evaluation of municipal lands;

Search of the most important factors of demand and supply, which have an influence upon price calculation and movement in general evaluation;

Development of the mass valuation model in the practice of undeveloped market by the example of city of Donetsk

When realizing general evaluation one applies traditional methods of evaluation: costs determination, sales comparison and income determination. However, general evaluation has a number of its own distinctions in kind from the individual one, which are shown in Table No 1.

Table No 1 — Main distinctions in kind of the individual valuation from the mass one
Comparison parameter	Individual valuation	Mass valuation
Object	A single object of estate (building, construction, land, etc.)	A number of objects, which are preliminarily grouped by certain criterion of similarity (typically, objects with similar functional designation belong to the same group)
Realization	At lib of the owner	Regular, in a short space of time (valuation of the replacement cost of buildings and constructions, occasionally done by Technical Inventory Bureau)
Character	Individual; own approach of every appraiser	General, and, as consequence, it involves considerably lower expenses; objective, as mathematic methods of processing are used

Main occasions for general evaluation application are presented in the form of scheme on Picture No 1.

Animation was creatad in the program GIF-Animator, volume of animation 38 KB

Picture No 1 – Occasions for mass valuation application

Model making is based on the analysis of the accumulated information and analysis theory. Eventual result is a mathematic formula, left part of which contains market value of the object based on a specific point of time, and right one contains expression consisting of the factors, which determine this value (Picture No 2).

Picture No 2 – Mass valuation realization scheme

Thus, at the first stage, one selects method of valuation and overall type of the pattern (additive, multiplication or hybrid) based on the market analysis, and volume and nature of information [4]. Generation of the primary variables of the pattern based on the price setting factors (i.e. qualitative factors are numerically coded, etc.) is the next stage. For instance, date of bargain and year of construction can be converted into a nonlinear function. Finally, at the last stage, when one has determined pattern structure, pattern factors and the way they are entered into the pattern, one makes calibration (identification) of the pattern coefficients; this calibration determines immediate influence of specific factors upon market value. In addition, at the last stage, one has to perform control of the valuation quality.

Mass valuation patterns

Mass valuation patterns are developed for the groups of typical estate objects with the limited number of attributes of the objects. This condition of mass valuation assumes similarity of all other objects attributes, which include both physical (technical) attributes and location features based on the area zoning.

One can single out three main types of the mass valuation patterns, each of which as its own specific character.

Additive pattern looks like this:

P=A0+A1X1+...+AnXn, (1)

where P – market value of the object based on a specific point of time,
(Х1 ... Хn) – attributes of the estate object,
An – numerical coefficients at variable attributes of the object, showing contribution of the respective attributes to the value.

Mathematic regression allows calculation of the optimum An for the specific data base, however, the supposition about linearity of the contribution of every attribute usually does not correspond to the market reality. Additive pattern does not take into account the interconnection of the factors with each other; unsatisfactory describes limitary situations (e.g., an object with very big area).

Nevertheless, based on the pattern one can conclude about the importance of either variables or information errors. Additive pattern is usually used for preliminary analysis.

Multiplication pattern looks like this:

P=B0*Х1B1*... *ХnBn, (2)

where Bn - share of the variable attributes of the object..

Simple multiplication pattern is brought to additive type by means of logarithm, and has similar demerits. However, it allows more flexible reflection of the dependence (nonlinear included) of the value on the attribute value.

Hybrid pattern is a combination of the two types listed above, for instance:

P=Х1B1... ХnBn(A0*A1Х1*...*An*Хn), (3)

where A, B - share and coefficients at variable attributes of the object.

Such type of pattern allows quite adequate reflection of the main market tendencies. Absence of the strict determination enables making decision about method of entering (additive or multiplication) of any object attribute into the pattern by selecting the optimum method from the point of view of the forecast precision. However, such type of pattern makes coefficients calibration more complicated. Usually, one uses iterative methods here.

Selection of the one or another type of pattern is determined from the point of view of more adequate reflection of the market reality. Simple patterns – additive and multiplication – can be used to describe underdeveloped market without any nonlinear tendencies; they are logical enough in their structure and stable in terms of absence of the considerable deviations during evaluation of nonstandard objects. Hybrid pattern is optimal for the market with the established nonlinear tendencies and complicated types of dependence of the value on the factors. Unfortunately, to analyze final hybrid pattern is not as easy as two previous ones, especially, if complex variables, which reflect attributes interference, are involved. The other problem of the hybrid pattern is the strong dependence of the final result during iterating calibration on the initial coefficients values. Problems of the complex hybrid patterns intersect with the problems of heuristic modeling; they are poorly elaborated and require intensive expert collaboration [4].

Foreign experience in the development of mass valuation of the municipal land

In line with the tasks of the research it's necessary to analyze the existing system in the world of mass valuation of urban land. Examples would be considered experience of the mass appraisal of urban land in the Russian Federation, Sweden and the U.S.. The choice of these countries is explained by the fact that Sweden and the United States are among the most developed countries in the world with a market economy and the evolved system of taxation. In Russia, mass valuation of urban land developed since the early 90's. with the emergence and development of the property market and preparing for the introduction of property tax. Since the early 90's. Russia and Ukraine have the same opportunities and the economic base for the beginning of land reform in the field of land valuation, but the strategic course of development, for which Russia is to reform the land relations, ahead of Ukraine today.

Table No 2 - Foreign experience in the development of mass valuation of the municipal land
	The Russian Federation	Sweden	USA
Criterion	1	2	3
Availability of the system for the mass valuation for the purpose of taxation	Procedures for cadastral evaluation of land and estate are in the development process	Land (estate) valuation procedure for the purpose of taxation	Procedures for the purpose of taxation, increasing of the estate management efficiency, determination of its hypothecation value, evaluation of the estate investment portfolios and others
Name of the system	System for the national cadastral evaluation of land in Russia.	Swedish National Tax Department and National land survey.	International association of the tax appraisers (IAAO)
Date of the system creation	1991 - creation of the standard evaluation of land; 1997 – an experiment for the general evaluation of estate was started in two cities; 1999 – cadastral evaluation of land was implemented at national level.	System in its present-date form was created in 1970.	1934 – National association of the tax appraisers was created for the purpose of improvement of the system for tax valuation
Object of the mass valuation	Experiment for the mass valuation of estate includes all the types of buildings and categories of land within the city boundaries.	Estate (land + buildings): - Agricultural land - Residential buildings - Business buildings - Industrial buildings	Estate (land + buildings): - Agricultural land - Residential buildings - Business buildings - Industrial buildings
Main subjects	State cadastral evaluation of land is done by the Federal Office of the land cadastre of Russia through its regional branches. Private independent appraisers can be recruited.	National land survey — preparation of the evaluation models; National tax department — instructions and guiding principles; Regional tax authorities —valuation of some attributes of objects.	County bodies for property valuation
List of the legislative instruments, which regulate the process of mass valuation	Cadastral valuation of land is expected to be legally established in the second part of the Tax Code of the Russian Federation, Land Code of the Russian Federation, Law on State land cadastre. All these legal acts are in process of development now. Cadastral valuation of land is expected to result from the standard land value, which is applied in accordance with the existing legislation over all the country territory as a basis for the present land taxation.	Actual estate valuation process and appropriate resolution, Law on Estate valuation from 1979.	International association of the tax appraisers (IAAO)
Informational data	Data collection for the purpose of valuation varies according to the land category. Mass valuation models are developed in such a way that absence of market information is compensated with the considerable amount of information about factors, which are known to influence upon land value. Had data about bargain prices are absent.	One uses different information for valuation subject to the type of estate. This information includes data about location, land area, living space, year of construction and various physical peculiarities of the building	Reliable data about bargain prices, which are subject to obligatory declaration.
Practicability of the contest of the results	Upon receipt of notification for tax payment, taxpayer has a right to demand the results of his land valuation to be considered in accordance with the Article 8 of the Federal Law on Valuation activity. There have been almost no appeal proceedings regarding land tax within the limits of the present state tax legislation.	The owner can complain to the tax authority. After that, he is entitled to the administrative law (three levels).	The owner has the right to appeal to the county authority, empowered to decide the valuation cases (The Value Adjustment Board - VAB).
Practicability of taking into account the changes of the objects attributes	Not determined	Once a year one updates values of the attributes changed. National land survey notifies tax administration about all the changes of the land attributes, and the municipalities, in their turn, are to introduce appropriate changes into the buildings attributes.	Reevaluation of estate based on the market prices is done annually for the taxation purpose. Estate price information one can get directly from the local authority, as all the estate bargains are registered in the county.
Application of the individual valuation for increasing the accuracy of the mass one	Not used at the present moment	Evaluation patterns are tested during spade-work, when appraisers analyze the sales market in detail.

From the analysis of foreign experience we can see that many countries have already formed a system of mass valuation of urban land, legal and information base to carry out this type of assessment. In doing so, the information base is reliable and accessible. In addition, the mass valuation system provides the possibility of operational incorporate changes in the properties of objects, which, in turn, provides reliable information about the patterns of urban land markets.

The development and spread of mass valuation of urban land in Ukraine must be accompanied by improving the legislative framework for land management and valuation activities with the aim of establishing common principles and techniques for mass appraisal.

Identification of the most important demand and supply factors affecting the formation and dynamics of prices in the mass valuation

Market analysis in the mass valuation is intended to explore all supply and demand factors affecting the formation and dynamics of prices. The first phase - a qualitative analysis of the market and the selection of characteristics that affect prices, but a quantitative measure of their influence can not be determined. These characteristics will not be included in the valuation models, although external constraints will ask its accuracy. For example - a change of the political situation or tax policy can not be taken into account in the formula, but they strongly influence the market.

The second stage - the selection of characteristics, of which it's possible to gather information and determine the quantitative impact on the price. Qualitative analysis is carried out by groups of factors and levels of their influence [4].

In this work, a list of qualities pricing is based on the analysis of the real estate market of the city, as the cost of land affected by the characteristics of real estate located in the respective plots of land, location, neighborhood, environment, encumbrances and restrictions, the physical characteristics of soils and many other factors.

Conclusion

In this master's work there was a solution of the scientific and practical problem, which was to identify the strengths and weaknesses of technologies and methods of mass valuation of urban land in different countries, developing and testing a mathematical model of mass appraisal, adapted to existing in the region (Donetsk) land market and real estate.

Improvement of legislation, development and introduction of new technologies and methods of mass valuation of urban land, based on a statistical analysis of data will contribute to obtaining more accurate and reliable assessment results that will be as close to the market value of estimation.

At the moment of writing the abstract the master's work is not yet completed. Completion of work is planned by the december of 2011. Final complete text of work and proper materials can be got for the author of work or for the scientific advisor after the indicated term.