New Regulations on Valuation Reports:

Ensuring Accuracy and AccountabilityIn recent years, there has been an increasing emphasis on the accuracy and reliability of valuation reports in the real estate industry. To address this concern, the TKGM (The General Directorate of Land Registry and Cadastre) and GABİM (Real Estate Information Center) have introduced new regulations aimed at enhancing the quality control of valuation reports. These regulations focus on aligning the valuation standards with international norms and ensuring adherence to the guidelines set by regulatory bodies. In this blog post, we will delve into the details of the new regulations and their implications for valuation experts and stakeholders in the real estate market.

1. Definitions

First, the new regulations include a definition of the existing gross use area. The current gross floor area represents the actual usage of the property on-site, without taking into consideration legal permits and documents. This area represents the gross floor area at the time the structures were identified, but excludes visible areas such as shafts, skylights, air chimneys, and gallery voids. In external areas, the external contour wall axis is determined as the boundary. Additionally, in spaces consisting of multiple floors, the visible areas on these floors are evaluated together to determine the current gross floor area.

In places where there is a condominium or ownership structure, the determination of independent unit boundaries is considered within the scope of the valuation report. If there is a condominium structure, the boundaries of the condominium are determined, and if there is no condominium, the parcel boundary is determined.

2. Appraisal Report Applications

Another regulation includes the applications for valuation report. To determine whether the valuation report is related to any change in the title deed information, the dates of the report and the purchase or sale promise application must be compared. If there is any change such as change in property type, abandonment of easement, establishment of right of way, or other similar situations in the title deed registry, a new valuation report application must be made regardless of the date of the report.

3. Transactions to be Performed by MKK Real Estate Information Center Inc. (GABİM)

Enhanced Quality Control: Under the cooperation protocol between TKGM and GABİM, valuation experts employed by GABİM are responsible for conducting necessary checks on reports prepared by authorized valuation institutions. These checks primarily focus on the compliance of reports with the International Valuation Standards, regulations approved by the Capital Markets Board, directives issued by TKGM, and guidelines published by the Turkish Valuation Experts Association. The checks also verify if the appraised market value (TL) in the reports has been assessed accurately. Once the checks are completed and no discrepancies are found, the reports are marked as "USABLE" and sent to the Integrated Real Estate Information System (TAKBİS).

Ensuring Accuracy through Comparative Analysis: In instances where the valuation in the report significantly deviates from the comparables, GABİM notifies the applicant through SMS and email, instructing them to obtain a control report from a different institution other than the one that prepared the initial report. If the difference in valuation between the control report and the initial report falls within ±20%, the report that is deemed closer to the market value is marked as "USABLE" and sent to TAKBİS. The fees for both reports are paid by the applicant to the authorized valuation organizations.

Reinforcing Accuracy through Additional Controls: The calculation of the value difference is determined by the formula: Value Difference Ratio = (Control Report - Report Value / Report Value). In cases where the difference in valuation exceeds ±20%, GABİM notifies the applicant of the need for a second control report from a different institution through SMS and email. Once the three reports are available, GABİM evaluates them and selects the report that is deemed to reflect the market value most accurately. The report with the valuation farthest from the market value is then canceled, and the fees for the canceled report are refunded to the applicant. The fees for the remaining two reports are paid by the applicant to the valuation organizations.

Non-compliance Consequences and Expert Oversight: If an applicant fails to apply for a control report within 30 days from the notification or fails to pay the report fee, the pending valuation report(s) are marked as "UNUSABLE" and sent to TAKBİS. No further actions can be taken on these reports. The fee for the valuation report(s) is paid by the applicant to the corresponding valuation organization(s). In cases where there is doubt about the prepared valuation reports, GABİM may seek advice from the Turkish Valuation Experts Association (TDUB).

Furthermore, if any material errors or non-compliance with instructions are detected during the control process, GABİM returns the report to the valuation organization for necessary corrections. Failure to fulfill the requested corrections without valid justification results in the cancellation of the report, with the fee refunded to the applicant.

Reporting Potential Issues: If any issues are identified in the valuation reports submitted to TAKBİS after the control phase, GABİM promptly informs the General Directorate of Land Registry and Cadastre, providing necessary explanations. Additionally, reports that are determined to have a significant deviation from the comparables during the control process are reported to TDUB for disciplinary actions. It is important to note that the involvement of GABİM in the quality control of valuation reports does not absolve the responsible authorized valuation organization and the signatory personnel of their liability.

4. Actions to be Taken by the Authorized Valuation Institution

Finally, the actions to be taken by the authorized institution that will make the valuation report have been determined. For buildings that have passed two years and not five years have passed since the building permit date, the market value of the real estate can be appreciated if the stage of the building (foundation excavation, flooding, rough construction, etc.) is documented with photographs in the report. However, since the licenses of the buildings that have passed five years from the date of the building permit and are still under construction must be renewed, valuation cannot be made. Similarly, since the permits of buildings that have passed two years from the date of the building permit but have not started construction on the ground must be renewed, an appraisal cannot be made.

This directive will come into effect on November 27, 2023.

The purpose of these new regulations is to ensure that valuation reports are more reliable and in line with standards. In this way, it is to minimize errors and inaccuracies in the real estate valuation process and to ensure that investors have access to more accurate information. The controls carried out by MKK Real Estate Information Center Inc. (GABİM) highlight reports reflecting the market value and protect the integrity of the valuation process. In this way, appraisers will be able to provide more reliable reports with their knowledge and experience and contribute to the real estate sector.