Abstract
The general framework for the use of automated valuation models, based on the specific legal and regulatory standards for the valuation of property used as collateral in Germany, is described below. With these requirements in mind, the calculation methods for Market Value and Mortgage Lending Values are examined first. There are three methods available in Germany, which are used as either the principal or a secondary method depending on the type of property being valued. There then follows a summary of the principal databases. Without high quality, reliable and up-to date property data, it would be impossible to produce reliable Market Values and Mortgage Lending Values. How is this information used in automated valuation models and what role do valuers assume in the process? The answers form a further focal point of this discussion.
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Notes
- 1.
The terms ‘owner-occupied house’ and ‘single-family and two-family dwellings’ are used to mean the same thing in the following text. The property types ‘single-family and two-family dwellings’ include ‘detached single-family and two-family dwellings’, ‘terraced houses’ and ‘semi-detached houses’.
- 2.
German Pfandbrief Act (Pfandbriefgesetz) §16 (2). There is a similar definition in German Building Code (Baugesetzbuch) §194.
- 3.
The net rental income of the building is the total annual net rental income of the property less the annual return on land value (Verzinsung des Bodenwertes).
- 4.
See Crimmann, Mortgage Lending Value, p. 157.
- 5.
Therefore, like ‘Tobin’s q’, this multiplier also indicates whether it is worthwhile to purchase an existing building or construct a new-build. If the multiplier is greater than 1, then a new-build will be more beneficial than purchasing an existing property. If it is less than 1, the opposite is true.
- 6.
In exceptional cases, there may be a limited departure from the second rule.
- 7.
What is ‘sufficient’ in terms of comparability unfortunately remains unclear.
- 8.
Land valuation boards are autonomous and independent panels, which according to German Building Code (Baugesetzbuch) §195 Sect. 1 receive copies of all notarised real estate sale & purchase agreements.
- 9.
See also Fig. 3. This is an extract from the guideline land value map for Berlin dated 1 January 2014.
- 10.
With the emergence of finance provision via the internet and the increased presence of direct banks in the market, the proportion of enquiries resulting in a loan may have decreased significantly. Unfortunately, the only available information available is from confidential discussions; there is no information based sufficiently on fact.
- 11.
The acronym CIB stands for Computergestützte Immobilien-Bewertung (computer-assisted real estate valuation).
- 12.
An alternative method would be to classify comparable prices from the databases using appropriate selection filters to ensure comparability. In Germany, this alternative is fraught with significant problems because of data protection laws, which means that this is not common practice at present.
- 13.
The inputs from the Indicative Value can of course be used here if this is preferable and appropriate.
- 14.
If there are a number of rights entered in the land register, these are organised in order of ranking. The order of ranking reflects the order in which they are entered in the land register, as they indicate the order in which any proceeds from a compulsory auction of the property would be distributed.
- 15.
See Wolfgang Crimmann, Mortgage Lending Value, p. 115.
Reference
Crimmann, W. (2011). Mortgage lending value (Vol. 49). Berlin: Association of German Pfandbrief Banks.
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Eilers, F., Kunert, A. (2017). Automated Valuation Models for the Granting of Mortgage Loans in Germany. In: d'Amato, M., Kauko, T. (eds) Advances in Automated Valuation Modeling. Studies in Systems, Decision and Control, vol 86. Springer, Cham. https://doi.org/10.1007/978-3-319-49746-4_4
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