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. Last Updated: 07/27/2016

The Road to Russian Appraisals

Appraisal services in Russia -- are they fact, or fiction?

Mostly fact, but only if understood and used properly. In a functioning market economy, as Russia is striving to develop, there are all kinds of appraisal services that businesses and individuals need. Common examples are the appraisal of businesses, real estate, and personal property in the form of machinery and equipment, art, gems or minerals, and even financial instruments.

In Russia, the need for the evaluation of assets began to evolve in 1991 with the beginning of economic market reforms. This need could have been filled in several ways, including the contrasting methods of having the government establish all asset values or fostering development of a private, independent appraisal profession. Fortunately a group of gifted and forward-thinking individuals identified the potential for a private and independent appraisal profession and set about establishing it.

The first task was to understand the operation of the appraisal profession in developed market economies in order to promote a workable system in Russia. The second was to convince the political powers that the appraisal function in the Russian economy of the future should not be performed by government, but should be the job of independent and objective professionals.

With this in mind, the Russian Society of Appraisers was formed in 1993. Founding members traveled abroad to seek education and practical information sufficient to begin support of an appraisal profession in Russia. They established ties with real estate and appraisal organizations in Canada, the United States, France and Great Britain. This international credibility was used to convince the Russian political structure to include in current legislation the operation of an independent appraisal profession. Thus, the Duma passed a provision that allowed the required annual valuation of business assets to be accomplished either by a well-supported opinion of an independent appraiser, or by applying the customary government-issued formulae.

Today, the Russian Society of Appraisers has over 1,800 members and sponsors the operation of 74 regional chapters. The member professionals have access to appraisal courses in various disciplines including real estate, business valuation, vehicles and machinery/equipment.

The challenge for appraisal services in Russia is that valuing objects generally requires a market standard against which to compare. In the absence of a fully developed market, the Russian appraiser must seek alternative techniques of valuation when appraising certain objects, in particular real estate. This may mean estimating the value of an object not according to the benefits it presents to a typical investor -- that is, its market value -- but according to the benefits it presents to the individual investor.

Properly functioning economies rely on credible value estimates for loan collateral, for exchange of interests and other investment decisions. The society's professional infrastructure provides at least the beginnings of the appraisal support necessary for such transactions, and the society seems determined to extend this beginning to an effectively operating appraisal industry.

Gerald Gaige is head of the real estate advisory division at Arthur Andersen-CIS.

The Third Annual International Appraisal Conference will be held Nov. 27 and 28 at 55 Leningradsky Prospekt. For information, call the Russian Society of Appraisers, phone or fax: 124-0104 or 124-0709.