When a property appraisal is not an appraisal
The state-run Korea Appraisal Board (KAB) has its own way, relying on calculations linked to the market price of comparable assets. In fact, the KAB is not even allowed to make formal appraisals.
A proper appraisal involves three separate evaluations: the cost approach, the sales comparison approach and the income approach must be used together to arrive at a fair and accurate number.
A highest and best-use analysis is also necessary.
The JoongAng Ilbo met with Jung Su-yeon, secretary of the Asian Real Estate Society and vice president of the Korea Appraisal Society, on Feb. 20 to discuss the problems with the Korean government’s assessment process for single-family houses.
Jung, an economics professor at Jeju National University, addressed the fundamental flaw of not conducting true appraisals when arriving at valuations.
A. I agree that prices should reflect reality; however, there should be improvements in the decision-making process. As a tax increase usually follows an assessment, in order to convince taxpayers, accurate assessments must be made, and a clear explanation of the changes is required.
Who decides on the assessed values of single-family houses?
For standard single-family houses, 250 employees at the KAB usually take part. These are non-professionals.
I understand around 200 appraisers under the KAB also take part.
Yet the method in deciding the assessed value is not based on an appraisal but on the calculation method, so appraiser input is insignificant.
Wouldn’t the KAB make an appraisal as its name suggests?
People are misled by the appraisal board. The KAB has been unable to make appraisals since September 2016. The KAB should change its name to stop confusing people.
What is the difference between the KAB’s calculation method and an appraisal?
An appraisal is a professional process that incorporates the three approaches to valuation and a highest and best-use analysis. It is an international standard that countries such as the United States and Britain use for tax assessment. The calculation method mainly considers registered real-market prices and is a concept that exists only in Korea.
Is the KAB’s calculation method inaccurate?
It’s not just inaccurate. Calculations tend to be high for cheaper properties, while expensive houses tend to be calculated too low. In the case of low-priced homes, there are many transactions and also speculative trades, so the calculations are higher than what they are actually worth. For high-priced homes, there are few transactions, so calculation is conservative. Prices are also lower because more properties are gifted.
When did the KAB begin calculating assessed prices?
Since 2006 for multi-unit houses [apartments]. For single-unit homes, the work used to be done by private appraisers, but it was changed to the KAB in 2017. In the case of land, it uses the appraisal method. Single and multi-unit homes need to be appraised like in the United States.
Doesn’t the Land Ministry make adjustments after the calculations by the KAB to improve accuracy?
This actually makes matters worse: Land Ministry officials are not professional appraisers.
Is it then problematic for the Land Ministry to intervene in assessed property prices for specific real estate?
Yes. This year, there was an instance in which the assessed value for a single-unit home was first 3 billion won ($2.68 million) then adjusted to 1 billion won. There needs to be a review on whether that change is within legal bounds.
Didn’t previous governments intervene?
The lack of impartiality is a long-standing problem, but back then it was a uniform rise or fall.
Is it enough to change just the calculation method to the appraisal method for single-family houses?
We need to create neutrality assurance laws so that appraisers can assure the precise valuation of real estate. The government must provide taxpayers with accurate assessed values and transparent base data. The most effective way to minimize tax resistance is to increase policy transparency.
BY KIM MIN-JOONG [firstname.lastname@example.org]