Real Estate Quality Assessment Problems in the Estonian Real Estate Market Ene Kolbre Angelika Kallakmaa-Kapsta Pille Mihkelson Tallinn University of Technology
Problem • During the boom years (2001-2006) was not given special attention to the real estate quality and its assessment • Demand in the market was considerably higher than supply due to the favourable conditions of finance • All objects, notwithstanding their quality, were sold or rented out.
When the market declined and reached a depression it turned out that unsold or not rented out were real estate objects which had low quality • In expectation of a new real estate market rise real estate quality and assessment related problems have arisen in the Estonian real estate market
This research seeks to identify • how does the new valuers’ quality rating system meet quality valuation needs • what is the hierarchy of theof the factors influencing real estate’s quality rating • changes in that hierarchy depending on whether the quality grade factor is evaluated from the aspect of market demand, market value or real estatedeveloper
The basis of the quality rating system Quality grade is a complex indicator that represents a combination of factors that characterise the income potential and value of the real estate taking into consideration that every factor has to assessed based on the principles of sustainable development and saving use and market expectations for these indicators
The basis of the quality rating system Income potential is evaluated on the basis of the following attributes: location and use of the plot, quality of construction, real estate management
The basis of the quality rating system For determining the real estate quality grade a rating will be given separately to each attribute in a three point system A, B and C where A is the highest and C the lowest Aggregate rating of the real estate is the evaluation result of three attributes (for example, ABB; BBC).
The basis of the quality rating system Valuation of each attribute location and use of plot quality of construction management of real estate is based on the factors that influence the respective attribute, which are also evaluated in A, B, C system.
The basis of the quality rating system The choice of factors influencing the attributes depends on the type of object to be valued residential, office, commercial, storage and production properties. The factors are evaluated using a relative measure, for example high demand (A),medium demand (B), low demand (C) or good (A), satisfactory (B), bad (C)
Methods To find out the opinion of valuers about the necessity of determining the quality grades and methods of determining the quality grades An electronic questionnairewas used The questionnaire survey was sent to 60 members of the Estonian Association of Appraisers 35 responded
Respondents Active in real estate valuation for over 10 years 37% 6−10 years 31% 3−5 years26% 6% shorter than 3 years. 60% had the highest (5th level) professional certificate of property valuer 11% had the 4th level 29% had no certificate
Methods Analytic Hierarchy Process (AHP) methodelaborated by Thomas L. Saaty To evaluate the hierarchy of the factors influencing the quality grade the changes in the hierarchy, depending on whether the quality rating factor is evaluated from the aspect of market expectations, market value or developer
Results All the respondents found that it is important to calculate the quality rating grade for real estate objects in real estate valuation Agreed with the quality valuation method 42%completely 43% rather agreed 15% either rather disagree, disagree or can’t say
Results While analysing the questionnaire results the answers „completely agree” were replaced by grade 4; „rather agree” − 3; „rather disagree” by 2 and „completely disagree“ by 1. The answers „can’t say” were almost missing. To evaluate the importance of the factors, were calculated the arithmetic mean and mode of the factors.
Weightings of attributes depending on the purpose and viewpointof quality rating
Conclusions The survey results showed that the quality rating of real estate objects is important in real estate valuation. Pollution of the air, size and shape of the plot, noise, public recreation grounds were weighted as less important factors influencing the quality rating due to Estonia’s geographic location and low population density. The weights of factors calculated on the basis of the questionnaire results across attributes differed from those obtained using Saaty’s method.
Conclusions Location and plot have the highest weighting in the quality rating of both living space and office space notwithstanding the purpose or viewpoint of the quality rating. The weight of construction quality is the least changing irrespective of the purpose of rating or type of real estate object. Real estate management has a very low weighting excepted quality rating of theoffice space from the viewpoint of the developer .
Conclusions Every attribute had one factor with very high weighting compared to other factors in the group The quality rating system needs to be discussed and improved further
Authors Ene Kolbre School of Economics and Business Administration, Tallinn University of Technology e-mail: email@example.com Angelika Kallakmaa School of Economics and Business Administration, Tallinn University of Technology e-mail: firstname.lastname@example.org Pille Mihkelson School of Economics and Business Administration, Tallinn University of Technology 3 Akadeemia tee, 19086 Tallinn, Estonia Phone: 372-51 58 204, e-mail: email@example.com