The new law on valuation smashes everything. What next?

The new law on valuation smashes everything. What next?
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New amendments to the law, “On the valuation activity on the Russian Federation” actually eliminate commercial evaluation activities in Russia.

From June 12, 2016 a law introducing significant changes into the process of evaluation activity has come into power. From the standpoint of the professional community, the innovations both break the activity model which has worked for so long and with such difficulty, and also offer additional opportunities for corruption, primarily during the privatization of state property.


A bolt from the blue

According to experts, the adoption of the new law was a bolt from the blue for the professional community. It was adopted hastily, without professional consultation and even by way of violation of prescribed procedures.

In the Federation Council, where it went after the State Duma, it was discussed for several minutes. The long debate was said to make no sense, as the amendments being introduced do not change the essence of the evaluation activity in the country in a fundamental way.

— But it is absolutely wrong, Irina Shevtsova, Director General of the NP SRO “Business Union of Evaluators”, is sure. — The thing is that the new law changes the character of the evaluation activity in a cardinal way, which overrides many of the most recent achievements. In fact, it eliminates SROs in the industry, turning them into a kind ofwaxwork. But it was the state that initiated the appearance of this institute, and now the state has demolished it!

Irina Shevtsova thinks that the evaluators have made significant efforts to increase the quality of their work, and these efforts were connected with the importance of SROs because they carried out expert assessments of the evaluators’ conclusions. The accuracy of their assessments was supported by the indemnification fund.

The principle of collective responsibility was implemented. If a member of a SRO did a bad job, the customer’s losses were taken care of by the indemnification fund. The mechanism was perceived as acceptable by the professional community.

In spite of all SRO members being responsible for somebody else’s mistakes, there was a general understanding of the necessity for such an approach. The SRO Expert Council acted as an upper chamber which assessed the correctness of the property evaluations.

And now this important function is being eliminated, and an expert examination not connected with SRO is being introduced.

According to Irina Shevtsova, a western model of expert examination of the evaluator’s conclusion has actually been introduced. In the West, such expert examination is carried out only upon the customer’s demand and has the status of professional advice but not an official expert assessment. The whole responsibility is assigned to the assessed property owner. The relations arising in the course of affairs are based not so much on legal but on moral and business categories.

The Russian system will be different. The report on the evaluation will be given the status of a legal document, and the evaluator is fully responsible for it.

Before the adoption of the new law, the evaluator could resort to a SRO in the instance of a disputed situation for the expert examination of his work to be carried out. The SRO’s indemnification fund was responsible for it, and repayments might reach 1m roubles.

The practice in its former form has now been wiped out. Expert examination may be done, but formerly a SRO did it for free - now the customer is to conclude a special agreement, which means additional expenditures.

Budget organization will become complicated, as the estimate of expenses does not include such service payments. Consequently, in the majority of cases there won’t be any additional expert examination, so the evaluation quality control mechanism will be gradually lost.

More than that, risks are growing sharply for such organizations.

— If there is no compulsory expert examination, there is no additional protection from the Prosecutor’s Office or Investigation Committee’s claims on the evaluation results, the Vice-President of the Russian Evaluators’ Society, Evgeny Neiman, explains. — And this is a wide-spread phenomenon in our practice, so be ready to be called to the competent authorities.

It will lead to one more negative consequence: the quality of inter-agency committees’ decisions on arguing the cadastral cost of objects will decrease, and if the case goes to court, they will be forced to carry out a new expert examination, at the claimant’s expense, of course.


Dead mechanism

Meanwhile, the results of expert examinations are the only tool for public control of state property evaluation. Thus, the evaluation procedure for state property privatization has become closed.

Specialists agree that the end of the expert examination of conclusions will lead to the non-transparency of deals and will enhance corruption in privatization procedures and other deals, including state property.

If the evaluation is formally carried out by a legal entity, and a particular employee is responsible for it, the mechanism of responsibility will not work, Elena Petrovskaya, chair of the industrial department for evaluation business of “Business Russia”, thinks.


Evaluators quit the market

Authorities seem to have chosen their way of breaking the self-regulation mechanism, and not only in construction. In the sphere of evaluation it worked rather efficiently. The mechanism developed by a process of evolution, undertaking important functions from the state. Now the reverse process has started: the state is depriving the evaluators’ SRO of one function after another.

Thus the Council for Evaluation Activity under the Ministry of Economic Development has started to deal with the development of professional standards, though all over the world this is the function of SRO.

Another important function – the professional activities and evaluators’ qualification level check – has also been taken away. Now they must take a state examination once every three years to legitimize their qualification. The new law has created conditions which make the creation of evaluators’ national associations impossible, Irina Shevtsova points out. All the requests from the professional community have been ignored. The Ministry of Economic Development has even adopted a code of evaluators’ professional honour. All over the world, it is the most important prerogative of the professional community.

And what is in the result? All the risks have grown sharply: the evaluators’, the customers’ and the state’s. There is now a tendency for professionals to quit the market, upon which it has become uninteresting and risky to work.


Nobody should get in the way

Presently, the market of evaluation activity is not in the best state: volumes are decreasing. If the state authorities keep on doing things this way, the market may fail, Alexei Kaminsky, President of the NP “Expert Council SRO” warns.

This is quite real. The attitude of the state towards this kind of business is very negative, and they are trying to force it out of the evaluation sphere. Instead, they are going to introduce cadastral evaluations carried out by state evaluators.

Actually, it will mean precisely this: an object will be evaluated the way the authorities want to evaluate it. This is the aim of the elimination of the institute of SRO: for nobody to stand in the way.

Vladimir GURVICH