Ene KolbreTallinn University of Technologye-mail: ene.kolbre@tseba.ttu.ee

Veronika IlsjanTallinn University of Technology

e-mail:veronika.ilsjan@gmail.com

Current situationReal estate appraisers and market analysts in

Estonia use various indicators to characterise the quality of real estate, and even those were mainly for offices and commercial real estate.

The need to harmonise and ensure unambiguousness of the quality rating led to working out a new quality rating system for real estate valuation.

The basis of the new rating system Quality grade that serves as the basis for the

new rating system shows the competitiveness of the real estate object to be attractive for similar types of lessees or buyers.

Quality grade is a complex indicator that represents a combination of factors that characterise the income potential and value of the real estate and market expectations for these indicators.

The basis of the new rating system As market demand is the main factor influencing

income potential and sustainability of a real estate, then the quality grade is determined on the basis of market demand principle.

Quality grade for a real estate object is determined on the basis of its income potential, taking into consideration the sustainability of the object, i.e. every factor has to assessed based on the principles of sustainable development and saving use.

Income potentialIncome potential is evaluated on the

basis of the following characteristics: location and use of the plot, quality of construction, real estate management.

GraduationFor 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).

GraduationValuation 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.

EvaluationThe 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 examplehigh demand (A),medium demand (B), low demand

(C) orgood (A), satisfactory (B), bad (C)

EvaluationThe final rating of the attribute is calculated as

a sum of grades of individual elements on the basis of dominating valuation results, taking into consideration their influence on the object’s value.

The calculated final grade is based on expert’s experiences, knowledge and logical arguments rather than mathematical calculations.

I Factors influencing the quality rating on the basis of location and plot

Use:Residential- E, office- K,commercial- Ä, storage and production- T

Location within the region-high demand (A)-medium demand (B)-low demand (C)

E, K, Ä, T

General plan and usage of the object-conforms to high demand (A)-conforms to medium demand (B)-conforms to low demand (C)

E, K, Ä, T

Pollution of the air-missing (much lower than established norms) (A)-within the established norms (B)-exceeds the established standards (C)

E, K, Ä

Noise-missing (much lower than established norms) (A)-within the established norms (B)-exceeds the established standards (C)

E, K, Ä

Parking facilities -very good (A)-no problem with parking (B)-bad (C)

E, K, Ä, T

Maintenance of local roads-very good and good (A)-good and satisfactory (B)-satisfactory and bad (C)

E, K, Ä, T

Conformity to the building right of the plot-the plot has an additional building right and this is a value added (A)-additional building right is possible, but doesn’t give any added value (B)-getting an additional building right is a problem (C)

E, K, Ä, T

Shape and size of the plot-optimal shape and size, which enable to fulfil needful functions and flexible re-allotment (A)-shape and size in general enable to fulfil necessary functions (B)-shape and size do not enable to fulfil all necessary functions (C)

E, K, Ä, T

The quality factors of location and plot Other factorsInfrastructure for public services in the

vicinity (schools, kindergartens, shops etc)Greenery and maintenance of the regionSecurityLight traffic roads and public recreation

grounds (playgrounds and sports grounds, dogs exercise areas etc)

Total number of factors 17

II Factors influencing the quality grade on the basis of construction quality

Use:residential- E, office- K,commercial- Ä, storage and production- T

Architectural solution - satisfy users with high demands (A)- satisfy users with medium demands (B) - satisfy tenants with low demands (C)

E, K, Ä, T

Functionality of the building - high: high floor space efficiency, planning of the rooms is rational, usage of rooms can be changed flexibly (A)- average: average efficiency of using floor space, rationality of planning questionable here and there, usage of rooms cannot be changed flexibly (B)- low: floor space usage is ineffective, planning of the rooms irrational, usage of the rooms cannot be changed without rebuilding (C)

E, K, Ä, T

Condition of structures - good (A)- satisfactory (B)- bad (C)

E, K, Ä, T

Condition of technical installations in the building - good (A)- satisfactory (B)- bad (C)

E, K, Ä, T

Exterior finishing of the building- good (A)- satisfactory (B)- bad (C)

E, K, Ä

Quality of the interior finishing and fixed interior fittings in the building - good (A)- satisfactory (B)- bad (C)

E, K, Ä, T

III Factors influencing quality grade of the object on the basis of real estate management

Use: Residential- E, office- K,commercial- Ä, storage and production- T

Management of a property-effective, services of competent specialists (professionals) are used for management and maintenance; owner is aware of maintenance costs and technical condition of the building; property documentation is in good order and accurate (authentic); the building has a management plan (maintenance strategy) (A)-average; owner is aware of maintenance costs and technical condition of the building in the last year; property documentation is authentic (B)-ineffective and incompetent; manager is not aware of the maintenance costs and technical condition of the building (C)

E, K, Ä, T

Rental rate-higher than average (A)-average (B)-lower than average (C)

K, Ä, T

Use/non-use of electricity saving measures as a result of which energy expenses are-smaller than average (A)-average (B)-higher than average (C)

E, K, Ä, T

Energy consumption of the building (kWh/m²/y)-significantly lower (20% and more) than established minimum standards (A)-satisfying minimum standards (B)-much (20% and more) higher than minimum standards (C)

E, K, Ä, T

Waste disposal and assortment-satisfies contemporary standards (A)-working but has weaknesses (B)-insufficient (C)

E, K, Ä, T

Utility service costs (energy, water, heating expenses measured in cash)-lower than average (A)-average (B)-higher than average (C)

E, K, Ä, T

SustainabilityIt is an important principle that rating of the

factors takes into consideration sustainability of the real estate object.

By sustainability of real estate we mean purposeful real estate development that would ensure improvement in the quality of the property in agreement with the sustainable development principles.

To evaluate sustainability the following planning, architectural and construction principles are taken into consideration

reasonable use of the environment, i.e. solutions and means to reduce expenses that would yield best results in terms of sustainability;

maximising landscape quantity and quality options;using systems and solutions that enable saving use of

water;energy and fuel saving and protection of the

atmosphere;saving use of materials and resources.

ProblemsAssessment of the quality grade using this

methodology is labour intensive quite complicated requires extensive knowledge and experience