Objectives of Valuation

Valuation, in a broad sense, is the activity of appraisers aimed at determining the market or other values of property (collateral value, investment value, liquid value, full recovery value, residual value, enforcement value, etc.). However, from the point of view of the accuracy of this activity, it also has a number of limiting conditions and features. Taking these into account, the term "valuation activity" refers to the activity of independently and accurately determining the market or other value of the property by the appraiser, guided by the specific goals of the customer (consumer). According to this concept, there are the following signs of valuation activity, and their consideration in world practice is of great importance:

Firstly, the valuation activity is purposeful, i.e. it is necessary to define for what purposes the property should be valued; secondly, according to that purpose, the valuation activity is focused on determining different values. Therefore, the existing legal and regulatory framework of the activity should fully allow this. However, in the conditions of the market economy, it is necessary to highlight the importance of the market value and its application framework; thirdly, this activity is performed directly by the property appraiser; fourthly, valuation activity is a process aimed at determining a specific value. During this activity, a scientifically based conclusion is drawn about the value of the object on a specific valuation date, and this conclusion is reflected in the valuer's report.

In general terms, appraisal is the determination of the value of a property. However, depending on the purpose of evaluating this or that property, their value can change significantly. This is due to the requirements to determine the value of the object for specific purposes. For example, different approaches and methods are used to assess certain property for taxation or mortgage purposes.

The commitment or voluntary nature of  valuation is more of a legal matter. However, there is a need to clarify some of its economic aspects. Depending on the purpose and goal, there are two types of property valuation:

A) Mandatory valuation;

B) Voluntary valuation.

Legal grounds for mandatory or voluntary valuation of property are detailed in the Law of the Republic of Azerbaijan "On Valuation Activities" adopted in 1998. At the same time, in other legislative acts (The Civil Code, The Tax Code, The Land Code of the Republic of Azerbaijan; in a number of laws on banking, finance, insurance, etc.), cases of mandatory or voluntary valuation of property are specifically indicated. It can be considered important for the legal regulation of this type of activity to review objects in accordance with the principles of all legal and normative acts that serve the development and regulation of the economic life of the Republic of Azerbaijan, as well as the international traditions of civilized market relations.

Let's consider the types of property that are included in the list of objects whose valuation is considered obligatory (mandatory), and some conditions and signs that show the absoluteness of their valuation in this direction.

1. The valuation of state, municipal and private property in the Republic of Azerbaijan is considered mandatory in the following cases:

  • When the object is sold or alienated;
  • When the object is privatized, given to reliable management and leased;
  • When the object is invested as a contribution in kind in the authorized capital and corresponding fund of a legal entity;
  • When the object is used as collateral;
  • When it is necessary to use the facility as a coverage of debt obligation of any state organization to foreign financial institutions (this mainly refers to state ownership).

2. When there are disputes between the parties about the value of any object, it is necessary to determine its real value by an independent appraiser.

This is also expected to happen mainly in the following cases:

  • Acquisition of the object from the owner for state or municipal needs or taking it by various agreements;
  • Nationalization of property;
  • When the need for mortgage lending arises;
  • When it is necessary to investigate certain doubts and disputes that occurred in the process of property tax calculation in order to ensure its correct payment;
  • In determining the value of existing losses and damages in the event of an insurance event in connection with the compulsory insurance of the object of valuation;
  • When there is a need to divide the property with the consent of the parties in cases of divorce between husband and wife.
  • Membership in joint-stock companies, withdrawal from membership, as well as the agreement of the parties and the need to evaluate the value of shares from time to time in accordance with the legislation of the Republic of Azerbaijan:

Along with all the cases mentioned above, it may be necessary to assess or re-assess the property by the decision of the court.

Voluntary valuation market is wider and more comprehensive. Buying, selling, dividing, combining, donating property, creating new firms and companies is one of the realities that determine the continuous movement of the property market and the circulation of each property. As the entrepreneur's independence of use of his own property is ensured by the legislation, the entrepreneur has the right to evaluate the property in order to participate in the processes listed above. Therefore, at this time, the owner of the property has to voluntarily turn to another entrepreneur (the professional appraiser can also be classified as an intellectual entrepreneur). Appropriate contracts are signed between the parties, and an independent appraiser who has no interest in that property, who does not depend on anyone, participates in the process of determining the real value of his property based on the order of the entrepreneur.

Voluntary valuation is carried out in the following cases:

  • Valuation of the investment project of a new business or the investment project of one of the new directions of the existing business;
  • Valuation of the company's current management efficiency improvement (for internal use);
  • Valuation of the business (enterprise) or its part for the purpose of purchase and sale;
  • Valuation of securities for the purpose of additional issuance and pledging;
  • Valuation for the purpose of updating the structure of the business;
  • Appraisal for the purpose of taking a loan by pledging the property;
  • Valuation for the purpose of insuring the object;
  • Valuation for taxation purposes;
  • Debt liability valuation;
  • Valuation of losses or lost income;
  • Valuation of the business and its part that is voluntarily liquidated;
  • Valuation of separate property or types of property of the enterprise;

Valuation for revaluation of fixed assets.