ImmoWertV and ImmoWertA – which rules govern property valuation in Germany today?
The sales comparison, income and cost approaches are not freely chosen ways of calculating. What matters is a methodologically coherent system of valuation methods, market data and model consistency.
What is the ImmoWertV?
The German Property Valuation Ordinance – ImmoWertV – is a statutory ordinance. It sets out the principles for determining market values and for deriving the data required for this, such as standard land values, property yields, market adjustment factors, comparison factors, index series and conversion coefficients.
It therefore does not merely prescribe formulas, but creates a coherent system in which the property, the property market, the valuation method and the market data used must fit together methodologically.
And what is the ImmoWertA?
The ImmoWertA is not a second ordinance. It consists of model application guidelines for the ImmoWertV. It explains its application in considerably more detail and contains numerous practical notes and examples, including on rights of residence and usufruct, easements, heritable building rights, land valuation and remaining useful life.
Three basic valuation methods
The ImmoWertV recognises the sales comparison, income and cost approaches. Which method is suitable depends on the type of property, the practices of ordinary business dealings, the circumstances of the individual case and, in particular, the suitability of the data available.
So there is no fixed rule such as: detached house = cost approach, apartment building = income approach, flat = sales comparison. The choice of method must suit the property and the market.
Why does a cost value have to be adjusted to the market?
The provisional cost value derived from the land value and the depreciated value of the buildings is initially a model figure. The market adjustment factor (Sachwertfaktor) takes into account how the property market actually translates comparable cost values into purchase prices.
A factor of 0.90, for example, is therefore not a precautionary ten per cent deduction, but a figure derived from the property market.
The income approach also works with market data
The income approach is not simply annual rent × multiplier. Market income, operating costs, land value, remaining useful life and, in particular, the property yield (Liegenschaftszinssatz) interact according to the chosen model. The property yield is also meant to be derived from suitable sale prices in the property market.
What does model consistency mean?
The principle of model consistency is one of the most important rules in property valuation today. When other data required for the valuation is used, the same models and model inputs must be applied as were used in deriving that data.
This applies, for example, to market adjustment factors, property yields, comparison factors, total and remaining useful lives, operating costs and other model parameters.
Why can a supposedly more accurate calculation be wrong?
If a market adjustment factor was derived in a model with a particular land value approach, it may be problematic in a valuation to replace only the land value with a supposedly more precise figure and then use the same market adjustment factor unchanged. Two different models may then be mixed.
Property valuation therefore does not consist of searching for the supposedly “best figure” for each input in isolation. The figures must also fit together methodologically.
Special property-specific characteristics
Special property-specific characteristics can include, for example, unusual income conditions, construction defects and building damage, soil contamination and rights and encumbrances relating to the plot. What matters is not only that they exist, but whether they represent a significant departure from what is usual in the property market or from the valuation model.
Such features are in principle taken into account in such a way that the same effect on value is not counted twice in the valuation.
Defect = cost = reduction in value?
Not necessarily. The technical cost of remedying a defect can be an important basis. Ultimately, however, what matters is the effect on value that the property market attributes to the defect. Cost calculation and market valuation are therefore not the same.
Why can valuers reach different results?
Even a uniform legal framework does not turn property valuation into a fully automated calculation. Matters to be assessed include the choice of method, the suitability and adjustment of market data, remaining useful life, market rents, plot characteristics affecting value and the reliability of the method results.
The market value is therefore not determined by simply averaging several method results, but derived from the suitable method value or values, taking into account how reliable they are.
Conclusion
The ImmoWertV creates the methodological framework, and the ImmoWertA explains its practical application. What matters is not only calculating correctly, but choosing the right method, using reliable property market data and consistently aligning the valuation model and the market data.
Property valuation does not just mean calculating correctly. Above all, it means reflecting the specific property market with the right data in the right model.
Professional basis: in particular §§ 6–12, 27 et seq. and 35 et seq. ImmoWertV and the ImmoWertA.
How these rules are applied and documented in a specific report is shown on the page full market value report.