IVSC Statement Regarding Prudential Value for Real Estate

Christian Luft,

Chair, IVSC Europe Committee

The IVSC Europe Committee, together with the IVSC Tangible Assets Board, has closely followed the evolution of prudent valuation requirements over the past two years, keeping it as a standing item on our respective agendas. Since the implementation deadline earlier this year under the Capital Requirements Regulation (CRR), the IVSC has maintained a watching brief, carefully monitoring developments across Europe while remaining impartial to the different jurisdictional approaches being taken.

In these early stages of implementation, we have become aware that valuers are increasingly being instructed to provide prudent valuations, often with some uncertainty around the process to be followed — particularly given the absence of detailed regulatory guidance in some areas. Therefore, to support valuers during this transitional period, the IVSC has prepared the following statement, which aims to provide a clear picture of how prudent valuation requirements are being interpreted and applied across Europe.

I would like to extend my sincere thanks to the members of the IVSC Europe Committee, particularly Wolfgang Kälberer (Germany), Giampiero Bambagioni (Italy), and Paloma Arnaiz (Spain), whose insights have been invaluable. I would also like to recognise the contributions of our IVSC standards board members, notably Kim Hilderbrandt (Australia) and Jose Covas (Portugal), and to thank Alexander Aronsohn, IVSC Technical Director and lead author of the statement, for his dedication in bringing this work together.

We hope that this statement provides helpful context and guidance as the practical application of prudent valuation continues to evolve.

Since the update published by the IVSC Tangible Assets Board on Prudential Valuation for Real Estate on the 30th October 2024, the IVSC has noted various stakeholder discussions relating to Prudential Value across Europe.

Following the implementation of Property Value on 1 January 2025 in the EU through binding legislation, a number of our European member organisations and stakeholders from across the IVSC member network have received instructions to provide Property Value and have been seeking additional guidance from the IVSC.

IVSC has noted that in some European markets, Prudential Value is being provided by valuers, whereas in other markets, Prudential Value is being calculated internally by banks using either own data sources or data provided by third parties.

As an overarching principle-based standard setter, the IVSC believes that the key consideration with any valuation is the availability, quality, and access to data, regardless of who undertakes the valuation and for what purpose the valuation is carried out. As stated in IVS 104 Data and Inputs:

“… the valuer must assess data and conclude, based on professional judgement, that the data is relevant to value the assets and/or liabilities in accordance with the scope of work and the valuation method.” (IVS 104 30.03)

Additionally, International Valuation Standards (IVS)-compliant valuations rely on a core concept called a “valuation date” which is defined as:

 “The point in time to which the valuation applies.”

However, in the area of valuations for secured lending, financial stability aspects and prudential concerns are of increasing relevance. Therefore, valuation stakeholders should be acutely aware that the following prudently conservative valuation criteria have been introduced by the Basel Committee of Banking Supervision (BCBS) and the European Union legislator, namely:

• “the value is adjusted to take into account the potential for the current market value to be significantly above the value that would be sustainable over the life of the loan”
• “the value excludes expectations on price increases”
• “the value is not higher than a market value where such market value can be determined”

Whilst the broad intentions of the prudential value concept appear to be understood, the IVSC shares the view of the BCBS “that national supervisors should provide guidance setting out prudent valuation criteria where such guidance does not already exist under national law” (Basel III, CRE20, par. 20.75).

At this point in time, valuation stakeholders should note that there is no agreed interpretation of the definition, nor an agreed implementation methodology for Prudential Value.

More recently, a baseline consensus on a number of principles seems to emerge in EU mortgage markets and be shared by valuation stakeholders and lending institutions. In summary, three types of valuation practice are being transposed to produce Prudential Value:

1. Mortgage Lending Value valuations
2. Adjusted Market Value where the adjustments are determined by the individual valuer
3. Adjusted Market Value where the adjustments are provided by credit institutions or third-party data providers, valuers being instructed to provide a Market Value valuation only.