How to Standardize Real Estate Valuation Practices in Thailand

September 11, 1998
Prepared by
Dr.Sopon Pornchokchai
Agency for Real Estate Affairs
". . .valuation is the heart of all economic activity. Everything we do as individuals or as groups of individuals in business or as members of society is influenced by the concept of value. A sound working knowledge of the principles and procedures of valuation is essential in all sorts of decisions relating to real estate buying, selling, financing, developing, managing, owning, leasing, trading, and in the ever-more-important matters involving income tax considerations. Sound valuation is basic to zoning, ad valorem taxation, city planning, and to effective management of urban affairs . . ."
Ring, Alfred A., and Boykin, James H. The Valuation of Real Estate, 3rd Ed. Englewood Cliffs, NJ: Prentice-Hall, 1986. p.1

1. Introduction
1.1 Independent Professional Opinion
        I write this paper as an independent and experienced professional valuer in Thailand. My independent opinion is offered for the sake of the standardization and improvement of real estate valuation practices in Thailand. Although it is an individual's opinion, I hope it will be beneficial to the field of real estate valuation as a whole. To all those who are involved in this field, I respectfully ask that you, please kindly give careful consideration to the proposals made in this paper.

1.2 Achievable Professional Practices
        Professional and accurate valuation is needed at all times, not only in the current bust period but also in boom times. In fact, valuation is at the heart of all economic activities and everything in society is influenced by the concept of value as mentioned above. Internationally-accepted standards of valuation practices are needed in all civilized countries. This implies trust among people in a single society, a single region and a single world.
        It is not beyond the present capacity of all parties involved in the valuation industry in Thailand to promptly help standardize real estate valuation practice. Thus, this task of standardization can be achieved successfully and quickly.

1.3 Most Thai Valuers Are Not Under-Qualified
        Although this paper focuses on standardizing valuation practices, this does not imply that most Thai valuers are under-qualified resulting in unreliability and bad practices. In fact, there are quite a number of knowledgeable, internationally-trained and widely-accepted Thai valuers. In various international valuation-related firms, most, if not all, valuation tasks are normally conducted by Thai valuers.
        In countries where the valuation profession is well entrenched, qualified valuers need to be in practice in a locale for a reasonable length of time. Therefore, an experienced and well-qualified British valuer cannot automatically be qualified to conduct valuation in the United States of America or Australia. He needs some minimum period of experience in a foreign country and he must be accepted by the local valuation institute or other ratifying body.
        In fact, scandals and bad practices can occur in any country and any profession. This can often be observed in the case of finance (e.g. the case of Baring Research and Nick Leeson), medical doctors, architects and the like. This paper is thus an attempt to propose some necessary protective apparatus to make valuation practices in Thailand more internationally accepted and reliable for all local and international investors and society at large. However, the assertion that valuation in Thailand is sub-standard and that Thai valuers are under-qualified, is untrue. However it must be recognized that there is a lack of formal valuation education at an appropriate level in Thailand, resulting in disparities in the professional knowledge base which need to be dealt with. This issue is addressed later in the paper.

2. Current Relevant Issues
2.1 Scandals and Bad practices
        The triggering point for doubts about Thailand's professional valuation practices was scandals involving financial loans, resulting in the arrest of some valuers. This led to some valuation firms currently appearing on a number of institutional, but unpublished, blacklists. Some of these are even international firms. Bad practices in valuation can be 1) valuers acting alone, 2) valuer and clients, where clients successfully bribe the valuers, 3) valuers, clients and officers who all cheat the financial institutions or other authorities involved in collusion.
        As mentioned, scandals and bad practices can be successfully avoided to a large extent. This involves 1) the establishment of some protective apparatus, 2) the establishment of guidelines and standard practices, 3) adequate, systematic and updated databases for valuation purposes and 4) the long-term strengthening of the valuation profession by appropriate education.

2.2 Extent of Responsibility
        An independent opinion of value derived by a professional valuer is not merely an ordinary opinion. It must be an honest opinion of true market value on a particular date by a professional who is competent and possesses skills adequate for valuation. Those who lack adequate skills or fail to exercise proper care and diligence in conducting valuation can be liable to prosecution within existing Thai law.

". . . the standard of the ordinary skilled man exercising and professing to have that special skill. A man need not possess the highest skill; it is well established law that it is sufficient if he exercises the ordinary skill of any ordinary competent man exercising that particular art . . . Mr. Ross (the valuer) had the necessary special skill. He knew, I am sure, what the accepted practices of expert valuers were, but he fell well below accepted practices to such a degree that he produced negligently a valuation which could not have been produced by a valuer of average competence using the reasonable skill and care which could reasonably be accepted of him"
(the Supreme Court of New South Wales quoted by Rost, R.O., and Collins, H.G. Land Valuation and Compensation in Australia. 1996 reprinting. Marrickville, N.S.W.: Southwood Press, 1996. p.30)

        There is no doubt that any professional valuer must be financially liable to plaintiffs in cases of proven lack of care and diligence in conducting valuations. This is simply a case of a valuer falling below standard practices. Such a valuer will be fully responsible for his guilt. An act of negligence will result in punishment if damage is caused to the client.
        It must be stated that the key is the proven lack of care and failure to follow standard practices. "One has also to bear in mind very carefully the fact that valuation is very much a matter of opinion. We are all liable to make mistakes, and a valuer is certainly not to be found guilty of negligence merely because his valuation turns out to be wrong. He may have taken too optimistic or too pessimistic a view of a particular property" (Rost R.O. and Collins H.G.: p.28)
        However, in contemporary financial crimes, the parties involved e.g. the clients, the valuers, the officers of government organizations and financial institutions involved should all be examined in cases of bad practice. Generally, guilty valuers are not the only, nor the principal criminals but, are often only the accomplices.

3. Valuation Education
3.1 Contemporary Constraints
        One major obvious constraint is that there is inadequate formal education in property valuation in Thailand at undergraduate and graduate level. The Rajaphat Institute of Technology, however, teaches at the vocational level. Some universities have undergraduate courses in real estate but not specifically in valuation. The Thammasat University graduate diploma course in valuation is offered at the considerably high cost of Baht 140,000 for 24 credits (8 courses) with another 2 seminar courses. In this current bust period, many potential students cannot afford to study there and, in the immediate situation, possible joblessness is a major concern. Additionally, any graduate studies coming on line will not be able to produce adequate numbers of qualified valuers in the short to medium term.

3.2 Continuing Education Program (CEP)
        In Thailand, the Valuers Association of Thailand has approximately 1,200 members. They are basically qualified for real estate valuation and they should be actively involved in CEP for strengthening their ethics and standards of practice in valuation. The success in enforcing CEP for all valuers will be the key indicator for ample education and reliable practicing standards for Thai valuers in the short to medium term until adequate formal education is available. CEP would then fill the role of keeping valuers up to date with current knowledge and techniques.

3.2.1 All existing valuers should be classified clearly as either "apprenticed", "residential", "general" or "senior" valuers in accordance with their education background and extent of experience.
3.2.2 All those members who are certified valuers must attend CEP programs for a certain period each year to maintain their professional status.
Valuer Classification
Education Background
Experience
Annual CEP
Valuers, apprenticed
related vocational training
<24 months
-
 
related undergraduate
<12 months
-
 
un-related undergraduate
<24 months
-
Valuers, residential
related vocational training
24 months
18 class hours
 
related undergraduate
12 months
18 class hours
 
un-related undergraduate
24 months
18 class hours
Valuers, general
at least undergraduate
36 months
24 class hours
Valuers, senior
at least undergraduate
60 months
30 class hours
3.2.3 The suggested program consists of:
Courses (3 hours each)
Valuers:==> residential
general
senior
Contemporary real estate situation
General Real estate market situation, half-year report
C
C
C
Residential properties, demand & supply/price change
C
E
E
Market situation of commercial and industrial properties
E
E
E
Index of land price changes
C
C
C
Half-year review of related professional practices
E
E
E
Related real estate fields
Real estate developments, residential
E
E
E
Real estate developments, commercial
E
E
E
Real estate developments, industrial
E
E
E
Real estate developments, recreational
E
E
E
Modern real estate development: science/theme park etc.
E
C
C
Estate Management
E
E
E
Sales planning of real estate products
E
E
E
Real estate agencies and brokerage
E
E
E
Basic working knowledge
Business Thai writing
C
E
E
Introduction to computer
E
E
E
Computer: database
E
E
E
Computer: spreatsheet
E
E
E
Computer: modelling development
E
E
E
Information management
E
E
E
Basic knowledge involved
Fundamental research in real estate
C
E
E
Market survey and marketing feasibility
E
E
E
Real estate mathematics
E
E
E
Accounting
E
E
E
Financial analysis
E
E
E
Basic statistics for valuers
C
C
C
Advanced statistics for valuers
E
E
E
Concepts on town planning and zoning
E
E
E
Basic title certificates, ownership and occupation of properties
C
E
E
Review of contemporary laws and regulation on real estate
C
C
C
Plan reading
C
E
E
Basic cost estimation and cost table
C
E
E
Construction approval procedures
E
E
E
Eminent domain and compensation
E
E
E
Valuation Standards
Valuation: code of ethics
C
C
C
Valuation: guidelines for standard practices
C
C
C
Advanced reporting in valuation
E
E
E
Valuation: discounted cashflow and hypothetical analysis
C
E
E
Valuation: income approach to value
C
E
E
Valuation: computer-assisted mass appraisal
E
E
E
Valuation workshop 1: infrastructure
E
C
C
Valuation workshop 2: farm land/fruit orchard
E
C
C
Valuation workshop 3: forestry and mining
E
C
C
Valuation workshop 4: commercial complexes
E
C
C
Annual Submission of critical valuation reports (no. of reports)
5
3
3

C = compulsory, E = elective
3.2.4 Budgeting
It would be possible to develop a financially viable CEP in Thailand.
 
• It is estimated that some 36 CEP courses can be conducted every year. Some 50 participants per course can be accommodated. The cost per participant is estimated at Baht 500 (excluding the venue). Hence the total estimated cost will be Baht 900,000 per year.
 
• 2.0% of each valuation fee could be donated to Thammasat University and/or the Valuers Association of Thailand to organize this CEP. Cases of valuation which are reported to the Association will be recognized and acknowledged as official referral records.
 
• Major players in using the valuation services such as the Government Housing Bank, the Bank of Thailand, the Securities & Exchange Commission, Thailand could be requested to kindly donate funds to help set up this CEP, as well.
 
• Some institutions such as the Government Housing Bank would be willing to provide the venue for the CEP.


3.3 Examination for Existing Valuers (if necessary)
        If there is a consensus that there is a need to prove the adequate knowledge of real estate valuers in Thailand to meet international standards of practice, a qualification examination can be created for all valuers in Thailand.

3.3.1 This examination may be conducted by the Valuers Association of Thailand or any other reputable organization.
3.3.2 The content of the examination will be based on the standards of various international valuers institutions such as the Australian Institute of Valuers and Land Economists, The Appraisal Institute (USA), the Lincoln Institute of Land Policy (USA), the Royal Institute of Chartered Surveyors (UK) etc.
3.3.3 Those who pass the examination will be of proven competence to investors involved in using the service of Thai valuers.



4. Standards of Practice
4.1 General Understanding

"In the United States of America, the state governments regulate real estate valuers. . . public regulation of real estate appraisers is beneficial to the economy while at the same time it provides modest advantages to the appraisers themselves". . . "Licensing appraisers, then, is necessary to protect the public, not the appraisers' clients. Licensing is necessary to protect customers and investors of the clients, not the clients themselves. . . public regulation of real property valuers can achieve more favourable economic consequences than is likely from their private regulation".
Anthony Reynolds, "Real Estate Appraisers Ought To Be Regulated" in the Valuers & Land Economists, Vol 34 No. 2, May 1996, Australian Capital Territory: the Australian Institute of Valuers and Land Economists, p.177.
4.1.1 Valuation standards, generally refer to codes of ethics and standards of practice. Both should be accepted by all valuers and disseminated to clients and parties involved for general understanding on the valuers' commitment to proper valuation.
4.1.2 It must be understood that professional standards of competence require both proper education and sufficient experience on the part of the valuers. Hence, organizations involved must provide proper education and examinations and evaluate the experience of their valuer members.
4.1.3 Professional-standard practices can be examined from standard guidelines and data collected. In practice, if a valuer follows the standard guidelines in his valuation with proper care and collects adequate relevant data for analysis of the value, he will be of professional standard.
4.1.4 In detail, the expression of professional standard practices is the elaboration of the appropriate methods of valuation applicable to the subject properties as well as the hypothesis made with reasons and supporting evidence.
4.1.5 The International Assets Valuation Standards Committee (TIAVSC) produces two related booklets or manuals i.e. IVS (International Valuation Standard) 1 - 4 and Preface to Standards and the Guidance Notes and Background Papers on the Valuation of Fixed Assets for Financial Statements. They contain some basic standards which could be translated and made appropriate in the Thai context.


4.2 Components of Standards
        Most valuation standards in the world are set forth along the following lines.

4.2.1 Ethics of professional conduct
 
• The essence of professional conduct includes integrity ("to render best service, independent of the financial reward offered to solve a given problem"...), intellect (power of reasoning as distinguished from the faculty of absorbing knowledge"...), education (to keep abreast with modern developments in theory and in practice"…) and judgement (ability to consider and weigh relevant data in order to reach a sound and reasonable conclusion).
• Valuer's rules of conduct includes 1) willingly share knowledge and professional experiences.., 2) encouraging higher standards and service performance.., 3) never speak ill or disparagingly about a fellow appraiser.., 4) seek no unfair advantage.., 5) avoid controversy.., 6) abide by rules and regulations.., 7) keep confidential matters.., 8) never undermine a fellow practitioner's professional relations with other.., 9) never solicit employment of a fellow practitioner's office..without his or her full knowledge and permission.., 10) conduct work so as to achieve a high regard in one's community..".
• The rules of conduct are "promulgated to promote and protect the common good as 1) the interest of the public 2) the interest of the client 3) the interest of fellow members and the profession at large".
(summarized from Ring, Alfred A., and Boykin, James H.: p.450-457).
4.2.2 Valuation concepts and principles
The following concepts need to be defined and explained:
  Market value
• Land and property
• Real estate, real property and assets (current or fixed assets, long-term assets
• Price, cost, market and value
• Highest and best use (and other recently popular uses of most probable use
• Utility
• Others (e.g fair value, specialized assets, depreciated replacement cost new)
(see details in the TIAVSC IVS).
4.2.3 Valuation Process
It is necessary to set out guidelines which demonstrate the normal valuation process; these would include:
 
• State the problem (kind of property, type of value to be estimated)
• List the data needed and the sources
• Gather, record and verify the necessary data (general data, specific data and data for each approach)
• Determine the highest and best uses or most probable uses
• Estimate value by different approaches with sound hypothesis
• Reconcile for final value estimate
• Report final value estimate with limiting conditions
4.2.4 Valuation report
 
• Report structure (introduction, description of relevant facts, analyses and conclusions, addenda)
• Type of report (manual and format of short-form report, narrative or full valuation report)
• Specific report form and valuation manual for specific properties (e.g. railroad, forestry, fruit orchard etc.) or for specific clients (e.g. property funds, public listed companies and the like).


4.3 Licensing and Grading
        Many countries have fond that it is advisable for professionals to be licensed and regulated to meet a certain standard of practice. This is applicable to all valuers in a country or a private self-controlled association. In concept, a valuer needs a license to be able to work and to set the line of work.

4.3.1 In Thailand today, the Valuers Association of Thailand and the Thai Valuers Associaiton have their own codes of ethics and valuation standard.
4.3.2 In principle, there is a need to adopt concrete and universal codes of ethics and valuation standards to comprehensively regulate all valuers in Thailand for the confidence of clients and the public.
4.3.3 Considering the standards of practice, valuers can be classified as follows (see also Section 3.2.2):
 
• Junior valuer (apprenticed)
• Valuer, residential properties
• Valuer, general properties
• Senior valuer

        The abovementioned standards of practice can be drafted within a short period but must be put into operation and rigorously enforced by the supervisory professional organization. This may also need some form of government involvement.


4.4 Individual Valuers
        Ideally, valuers should be licensed and certified as individuals. Independent valuers with impartial opinions on value can work in either government organizations, financial institutions or valuation companies. Valuers should be recognized independently from their work place. In turn, it must be a duty of all organizations with whom professional valuers work, to support the independence of valuers. Therefore, the education, the governing and the licensing should be targeted directly at each individual valuer.
        This is a future direction of development performance which would bring about standardization of valuation practices in Thailand.



5. Supervisory Professional Organization
5.1 Organizational Concept
5.1.1 Representing Valuers from Various Origins

        Valuers are not only in private valuation firms. They are in the public sector as well as financial institutions. The private firms and their valuers are one "faction" in the overall valuation supervisory organization as are those in financial institutions or those in related government agencies. Therefore, a supervisory professional organization representing valuers from various origins is needed and is more effective in operation. As a result, valuers from various origins can then be organized into chapters in the overall supervisory professional organization.
5.1.2 Independence and Impartial Opinion

        The proposition that valuers from private firms are more independent and impartial than valuers from in-house departments and government agencies is not always true. It is feasible that any valuer, no matter what his origins, could conceivably be corrupted into quoting fraudulent valuations. Impartiality can only be judged and achieved in practice, from the standards of practice of each individual. Hence, independence and impartiality can characterize a valuer from any field, as long as he is well-performed.
        To avoid any potential conflict of interest in the supervisory professional organization, elections must be fair and impartial. Working groups or professional sub-committees must be organized to help construct development activities for all valuers and to protect the public at large.


5.2 Organizational Structure
  The following sections describe a desirable structure for a professional valuation organization.
5.2.1 Executive Board
 
• This will be made up of notable representatives with sound valuation background from various sources i.e. the public sector, financial institutions, private valuation firms and the like.
• On the executive board, there will be two vice chairmen, a treasurer and a secretary general. The rest being directors or board members.
• The executive board should also appoint an advisory board to invite honorable persons devoted to the valuation profession to be advisors.
5.2.2 Sub-committees
The executive board will appoint the following permanent sub-committees:
 
• Academic and Training
• Newsletters and public relations
• Foreign affairs
• Member approval
• Valuation standards
• Complaints
• Practice Controls
Members of each subcommittee will be from each of the various origins of valuation practices. Monthly meetings will be held.
5.2.3 Chapters
Valuers from different origins of valuation practice will form chapters for working on their specific interest and benefits. They are:
 
• Chapter of valuation firms
• Chapter of valuers in valuation firms
• Chapter of valuers in financial institutions
• Chapter of valuers in the Department of Lands
• Chapter of valuers in other public organizations
• Chapter of valuers and lecturers in valuation
The chairman of the executive board will invite individuals or firms involved to a meeting to let them elect their own chapter board member to represent them in the association.


5.3 Internal Controls and Auditing

        In all the valuation entities, the quality controls, auditing and ethical code of practice must be enforced and examined closely.
5.3.1 Controls
This includes the processes of:
 
• valuer recruitment (education background, ethical and aptitude tests)
• in-house training
• occassional training in the CEP
• work procedures and supervision
All these tasks are necessary to develop a sound performance to meet international valuation standards.
5.3.2 Auditing
 
• Like auditors, valuers must be made independent of their organizations on standards of practice.
• As a required program within each valuation-related agency, a process of random checks of 5-10% of valuation reports must be done for quality control.


5.4 Supervisory Authority and Penalties
5.4.1 Supervisory Authority
As the supervisory professional organization, it can publicly declare that all acceptable valuation reports can only be made by those who are approved by this organization. Those who accept this announcement will be protected by the organization. All valuers and parties involved should empower the organization to:
 
• Certify and then license professional valuers
• Acknowledge and recognize the annual performance of individual valuers and valuation firms
• Coordinate the disclosure of information required for valuation practices in order to make them accessible e.g. government-assessed value, road proposals of various authorities, town planning and building controls.
5.4.2 Penalties
As mentioned, currently there is no direct legal public organization with regulations to control and punish fraudulent valuations made by valuers. However, those with bad practice will be expelled from the membership of the professional organization. Additionally, they could be liable to be sued by their clients or authorities involved as in normal cases.
 
• Valuers who are bribed or proven to have knowingly made fraudulent valuations will be expelled for life. The expulsion (without disclosure of reasons) will be announced publicly.
• Valuers who make a genuine mistake with no intention to defraud will have their case examined to determine if it amounted to incompetence. If so, they will be temporarily suspended.
Penalties will also apply to the chief or senior executive officers of a particular firm. Hence they must be members of this organization and must sign as a valuer on all valuation reports.



6. Information Management
6.1 Need and Investment
        Valuation data and information is inter-related with valuation education, standards of practice and the supervisory professional organization. A database system with efficient information management is a powerful tool that can greatly facilitate the valuation process and any fraudulent valuation can be examined promptly. This need must be discussed in conjuction with the necessary expenses. Whereas the need is obvious, investment on database in the past was very little. Prior to the current bust period, real estate development was worth over Baht 200 billion per annum. However, public investment in databases has been insubstantial.
        Agency for Real Estate Affairs estimates that the cost of management of real estate information for the benefit of all real estate professions would be Baht 50 million per annum, which represents only 0.0025% of the estimated value of housing assets in the Bangkok Metropolitan Region alone today.
        Although valuers may not be able to build a comprehensive and exhaustive real estate database at this stage, some critical data must be collected, systematized and made accessible for convenient use for valuation. Some method for payment for use would need to be implemented.


6.2 Information Needed
6.2.1 Public data
 
• Government-assessed value. This must be computerized on a nationwide basis and provided on line for valuers' use.
• The verification of land title deeds or title certificates at the office of the Department of Lands must be facilitated.
• Town planning and building and land regulations must be made easily accessible as well.
• Road proposals of different authorities involved.
• Transaction data must be made computerized in an on line service.
6.2.2 Valuation Report
Pool database. Summary figures on valuation of any single property conducted by valuation companies with location and some general information (excluding land ownership and some other confidential data) must be submitted to the supervisory professional organization to put in the pool database system to be available for comparison with other valuations done by valuers.
6.2.3 Continuing research program
Considering only residential development, Agency for Real Estate Affairs conducted a survey in early 1998 and found that there were approximately 6,000 housing estates in the Bangkok Metropolitan Region. In addition, there were altogether 2,000 commercial buildings. It would be very fruitful if all types of real estate development projects could be surveyed on a periodical basis e.g. half yearly or annually to provide up-to-date information for valuation purposes. The survey cost for approximately 8,000 projects is estimated at Baht 1,000 per project, making the total cost only Baht 8 million. This sort of information can be stored in a geographical information system (GIS) enabling the presentation of data with map and photographs together.
6.2.4 Other data
 
• News updates. These can be subscribed to from various news organizations. For example, since 1994, Agency for Real Estate Affairs has gathered news and information related to some 6,500 persons and 4,500 organizations involved in real estate activities.
• Publications from related organizations in Thailand and abroad.
• etc.


6.3 Proper Valuation on Property Transaction

        It is considered that all property transactions should be supported by a valuation report. However, since there may be too many transactions to handle, this suggestion could apply to properties worth over Baht 1 million based on the official government value. The reasons for this are as follows:
6.3.1 It will be beneficial to the government to regularly update the government-assessed value and to make it fair to parties involved in the transaction. However, any proposed transaction with a proper valuation already done by a certified valuer would not require another valuation.
6.3.2 In addition, the government will receive higher revenue because the present government-assessed value is typically lower than the open market value. In turn, if the government has any policy to reduce the government-assessed value, only a certain proportion of an open market value appraised can be considered the government-assessed value for ad valorem taxation purposes.
6.3.3 This valuation will also be beneficial for the valuers in terms of more employment opportunities. The revenue from higher taxes gained can partly be spent on the cost of each valuation.
6.3.4 By this regulation of valuation for transactions, a thorough database can be built for reliable valuations.

        The suggestion that properties worth over Baht 1.0 million (based on the government-assessed value) will be required to be valued, is due to the fact that the average price of housing units in the Bangkok Metropolitan Region is Baht 1.5 million and, on average, the government- assessed value is about two-thirds of the open market value.



7. Immediate Actions

        The above proposals are considered to be necessary for long-term development of the valuation profession. However, it also recognizes some urgent matters that need to be investigated and some certain actions to be taken. In addition, there are also some measures for the standardization of the valuation profession which can be achieved in the short-term, in a timely and cost-effective manner.


7.1 Immediate Needs
7.1.1 Bring together all valuers in the public sector, financial institutions and valuation firms in order to work out a plan for the development of the profession.
7.1.2 The supervisory professional organization needs to:
 
• adopt and enforce a comprehensive code of ethics and standard guidelines for valuation practice and reporting.
• set up a sub-committee to settle disputes between parties in this field including disputes between valuation firms.
• set up a sub-committee to handle complaints and valuation reviews in cases of disputed values appraised by valuation firms, which could potentially affect the genuine standards of practice.


7.2 Fee and Services of Valuers

        In the valuation of complicated income properties such as commercial complexes and hotels, valuation fees can vary by as much as 25-fold. One firm may quote a fee of Baht 20,000; whereas, a fee of Baht 500,000 is required by another. This fee could appear in valuation proposals for property funds, non-performing loans (NPL) of financial institutions and valuation for other public purposes.

7.2.1 Fee for NPL
 
• Financial institutions may consider valuation for the NPL to be an extra cost burden which should be minimized. Thus they might be discouraged from hiring a valuer to conduct the valuation at a normal professional fee.
• In the case of the NPL valuations, the estimated value of the NPL needing independent valuation is approximately Baht 1,000 billion. If the fee for the valuations is 0.01%, the total valuation fee would be Baht 100 million. If the average value of the properties
is Baht 40 million, the average fee would be Baht 4,000.
7.2.2 Suggested fee schedule for property funds and other public purposes
This type of investment valuation needs to be of very high professional standard. The fee could be calculated as follows:
 
• The gross fee could be 0.05% of the appraised value. If the property is worth Baht 1 billion, the fee would be Baht 500,000.
• 80% of the fee would be for the two firms selected to conduct the valuation (Baht 200,000 each or 0.02%.
• 20% of the fee would be for three "experts" to carefully check the relevant valuation reports.
7.2.3 Service Provision and punishment
Currently, the Securities & Exchange Commission have approved some 22 valuation firms to conduct valuations for public purposes. For the NPL valuations, the Bank of Thailand has also approved the same 22 firms. If these firms or any other additional firms are fairly approved, they are thus considered of similar competence. Hence, the opportunity for securing valuation assignments should be equal for all. The following service assignment conditions should be set forth:
 
• Allocation opportunity should be rotated by some system such as alphabetical order of the approved firms. Any firm which is not in a position to conduct a particular valuation (too difficult / too much work) can pass that one on and wait for the next one.
• The fee must be estimated and paid in advance and deposited with the Supervisory Professional Organization or the Securities & Exchange Commission in a trust account.
• A firm which agrees to conduct a valuation but cannot submit the report on time must pay a fine of 5% of the fee per day. This is a serious matter because time is important for this type of valuation. The fine will be paid back to the client.
• A value appraised by any firm which is proven by the "experts" to be outside a reasonable tolerance range will not be entitled to receive any fee. The fee will be paid back to the client.
• Those who have appraised incompetently, including exceeding reasonable tolerance, twice consecutively, will have their service suspended for one year.
• In case of dispute over a suspension, the matter should be referred to the Supervisory Professional Organization for investigation and review.
• Another responsibility of valuation service providers would be to make a personal presentation of their report(s) to the "expert" group upon the request of the group.
In practice, an equal opportunity for service provision should be applied to valuation for all other purposes. This is one of the measures to help prevent scandals caused by the hiring of the same few valuation firms with close relations to benefiaries to value properties.
7.2.4 The "expert" check
The Supervisory Professional Organization should play a critical role with authorities involved such as the Securities & Exchange Commission and the Bank of Thailand to appoint a panel of experts to review valuations for public purposes or other critical valuations. These experts are those very knowledgeable and possessing extensive experience and other necessary qualifications. They should not be academicians or high ranking officers with no working experience. In turn, they could be senior valuers in firms apart from those providing the particular services. It is proposed that a pool of such experts should be nominated from which any three could be selected to carry out the experts' duties.


7.3 Key Persons for the Success

        Although the thorough standardization of valuation practices in Thailand may need a considerably long period of time, some changes in procedures and some mechanisms for change can be implemented immediately. The starting point would be to identify some key persons in the field of valuation who are internationally-accepted as possessing substantial experience and expertise. If these key persons can provide stimulus for moves towards upgrading, things will change dramatically.
        Key personnel from the Valuation Association of Thailand and Thai Valuers Association together with other experts from related organizations should organize a steering committee to create measures, structures and regulations to implement the upgrading of valuation practices immediately. The situation today Indicated that success in standardizing valuation practice will depend largely on the influence and actions of these key persons.