Lawyers from St Petersburg University on the poor quality of real estate valuation services in Russia
Scholars from St Petersburg University have analysed current judicial practice concerning cadastral value disputes in court and concluded that the cadastral value of a real estate is often overstated and valuation reports contain errors.
There are several ways to assess the value of real estate. It is possible to estimate its market value – the price an apartment is sold or bought for. However, there is also the cadastral value, which is determined by the regional authorities depending on the location of the property, its size, date of construction, and other factors. It is the cadastral value that determines the amount of tax the taxpayers have to pay when they own the property, decide to sell or give it to someone as a gift.
If the owner does not agree with the cadastral value, they may challenge it in court. The scholars from St Petersburg University have analysed more than 720 such lawsuits from 2017 to 2019. The authors of the report, Vladislav Savinykh, Associate Professor at St Petersburg University, and Nikolai Barinov, Associate Professor and Director of Research and Methodological Development at the AVERS Consulting Group, concluded that in 60% of the cases reviewed, the cadastral value of the real estate had been overstated by more than twofold.
This means that in most cases, taxpayers are presented with a cadastral value that has been determined incorrectly. Contesting the cadastral value remains a necessary procedure for the protection of claimants’ rights.
Vladislav Savinykh, Associate Professor at St Petersburg University
The experts also found that in 38% of the cases, the court established that the valuation report, produced by a private appraiser, contained errors. 'On the one hand, this figure is much lower than the 95% that is sometimes cited when criticising the institution of private appraisal. On the other hand, it is high enough to suggest that the quality of the services for assessing market value is low. This requires prompt and adequate measures from the valuation community, especially the appraisers’ self-regulatory organisations of, and from the legislator,' said Vladislav Savinykh. Nikolai Barinov suggests improving federal valuation standards, developing mechanisms for ensuring the liability of appraisers, including court experts, and developing unified guidelines on specific issues of valuation.
Also, the lawyers from St Petersburg University found that in opting for the valuation conducted by the court rather than assessment commissioned by the owner, the courts often justify their decision not by referring to defects in the valuation report but by its natural characteristics that might arise from the fact that the appraiser has not been warned by the court of his/her criminal liability, for example. According to the experts from St Petersburg University, this approach is unjustified and makes it pointless for the claimant to bear the cost of the valuation before going to court.
In such cases, the actions of the appraiser, which have been within the variation allowed by the requirements of the federal standards of valuation, have been described as a violation. This problem, according to the authors of the report, creates the risk that virtually any valuation report might be deemed unreliable.
The lawyers from St Petersburg University believe that this problem could be solved, for example, by: developing general guidelines for the appraisers of all self-regulatory organisations; overruling expert opinions that do not indicate a violation of specific provisions of the standards of valuation; and distributing evaluation issues between two appraisers. The scholars have also come up with a proposal to: publish dictionaries of the terms used and basic manuals on valuation; and make it clear to appraisers, including those engaged as court experts, that they should exercise professional discretion when making market–value assessments.
The full report is published on the website of the project 'Monitoring of Law Enforcement’.