2015-11-03
National Audit Office: too many violations in valuation reports
In the public sphere, there is an ongoing discussion about agreements between clients and some property valuators leading to overvalued and undervalued property. The audit conducted by the National Audit Office found that over the past three years 81% (383 out of 473) of verified valuation reports did not meet the regulatory requirements. The Property Valuation Oversight Agency annually verifies around 0.35% of 50 000 valuation reports prepared by property valuators.
It was found that in most cases the property valuators did not comply with the methodological provisions. A half of detected violations were due to the improperly applied comparative method of valuation because some selected objects were not identical therefore they could not be compared. The selected lands differed several times in their area, and the use of compared lands was different, too. For instance, total areas of compared objects were 15, 24 and 71 times smaller than weighted property.
A part of previously mentioned reports have been prepared for the public sector. It was found that 114 out of 179 verified reports did not meet the essential regulatory requirements, and property valuation was not sufficiently substantiated. Property valuation in the public sector is relevant when making decisions on asset sales, taxation of property, contribution of capital in the form of property and expropriation of property for society needs.
Valuation reports still remain in force if they are declared erroneous. Clients do not even know that their property reports were declared by the Property Valuation Oversight Agency as not meeting the regulatory requirements, and their property valuation was not sufficiently substantiated. There are no legal requirement to inform clients about it. According to public auditors, in order to protect legitimate expectations of the client, the obligation to inform the client should be prescribed by law, together with an indication that violations detected by the Agency might have influence on his/her property value.
Practically speaking, property valuators who broke the law are not punishable because the Agency applies to the Judicial Court of Honour only after receiving applications or complaints. Having revealed any shortcomings during a routine inspection, the Agency informs a property valuator and his/her employer by writing and instructs them not to do so in the future. Consequently, property valuators remain unpunished and they are not deterred from committing similar violations.
It should also be noted that property valuation as a profession began to take a shape in 1993. However, public supervision of property valuation was not given adequate attention thus providing opportunities for illegal activities on the basis of agreements between clients and some property valuators. Key developments in this area began on 1 May 2012, when the new edition of the Law on Foundations of Property and Business Valuation entered into force that provides for elimination of unjustified property evaluations made by property valuators.
The National Audit Office made recommendations for the Government and the Ministry of Finance to assist in ensuring more efficient public supervision of asset valuators and their work.