The performance of independent property valuation in Ukraine is regulated not only by the Law of Ukraine “On Property Valuation, Property Rights and Professional Valuation Activity,” but also by a system of national valuation standards. We have reviewed the key provisions of the Law that are most important for clients in a separate article. National valuation standards play an equally important role — these are regulatory documents that effectively determine how exactly a valuer must establish the value of property.
The first such document, both by number and by substance, is National Standard No. 1 “General Principles of Property and Property Rights Valuation”. It establishes the basic rules for conducting valuations, defines key concepts and valuation principles, sets out the structure of the valuation report, and outlines the general requirements for a valuer’s work.
Most clients never read this document — and that is entirely natural. The Standard is written in professional language and is primarily intended for valuers. However, certain provisions directly affect the valuation result and sometimes explain situations that may seem unusual or even unfair to clients.
In this material, we will not review the entire Standard, but only those provisions that are of practical importance specifically for clients and users of valuation reports: property owners, lawyers, accountants, heirs, and anyone involved in determining the value of property.
We will begin with the basic concepts, as they define what “value” actually means in a valuer’s report.
Key Terms of the Standard: What Is Market Value?
Clause 3 of National Standard No. 1 contains a list of key terms used in the valuation process. For clients, the most important of these is the definition of market value, since this indicator is specified in the vast majority of valuation reports.
Market value is the value at which a valuation object may be transferred in the market for similar property as of the valuation date under an agreement concluded between a buyer and a seller, after appropriate marketing, provided that each party has acted knowledgeably, prudently, and without compulsion.
In simple terms, market value is not an abstract figure and not merely the “opinion of the valuer.” It is the most probable selling price of a property under normal market conditions. Market value is only one of several possible types of value, although it is the most common. You can read more about market value here.
In practice, however, in approximately 99.9% of cases — property sales, inheritance matters, court disputes, notarial actions, or taxation — it is market value that is determined. That is why its definition in Clause 3 of the Standard is fundamental to understanding the entire valuation procedure.
This definition also leads to another extremely important valuation principle that often causes misunderstanding among clients — the principle of highest and best use. It explains why a property is sometimes valued differently from the way it is actually used by its owners.
The Principle of Highest and Best Use: Why Valuation Sometimes “Does Not Match” Reality
One of the most important provisions of National Standard No. 1 — and at the same time one that most often surprises clients — is the principle of highest and best use, established in Clause 10 of the Standard.
Many property owners logically assume that if a property is currently used in a certain way, it should be valued exactly on that basis. However, professional valuation operates differently.
The Standard provides that property value is determined not by its current use, but by the use that is legally permissible, physically possible, financially feasible, and that results in the highest value of the property.
This requirement is expressly emphasized in Clause 13 of the Standard:
“For the purpose of determining market value, the highest and best use of the valuation object shall be taken into account.”
In practice, this means something very important: the valuer analyzes the property’s potential, not merely its actual condition at the time of inspection.
For example, imagine a retail space on the ground floor of a building — with a separate entrance, large display windows, and heavy pedestrian traffic. The owner may currently use it as a warehouse or for production purposes. However, the market primarily perceives such a property as commercial space suitable for a store or an open-plan office.
Therefore, during the valuation process, this property will be compared with retail premises rather than warehouses. Accordingly, the determined value may be significantly higher than the owner expects if they focus only on the current use.
The reverse situation is also theoretically possible, although it occurs less frequently in practice. If premises are actually used as a store but have technical or legal restrictions that would not allow such use in the future, the valuation may be lower.
This is precisely why valuers ask many questions regarding the functional purpose of the property, documentation, and permitted uses. This is not a formality, but a legal requirement.
For the client, the main conclusion is simple: valuation determines not how the property is currently used, but how it would be most rationally used by a reasonable market participant. And this directly affects the final value.
Three Approaches to Valuation: How Value Is Determined
Another provision that helps to understand the logic of a valuer’s work is contained in Clause 38 of National Standard No. 1. It states that value is determined using three main methodological approaches.
These are the cost approach, the income approach, and the comparative approach. They are not different “methods used by different valuers,” but a regulatory framework for determining value established by legislation.
The comparative approach is based on the analysis of actual transactions or offers for the sale of similar property. In simple terms, the valuer studies the market and determines the prices at which comparable properties are sold, then adjusts those prices to reflect differences. This approach most accurately reflects the behavior of real buyers and sellers, which is why residential real estate and land plots are valued using this approach in most cases.
The income approach is applied when the property generates or can generate income. In this case, value is determined through the potential profit from the use of the property — for example, rental payments from commercial real estate. Therefore, non-residential premises, business centers, or retail spaces are often valued using both the comparative and income approaches.
The cost approach is based on calculating the cost of creating or reproducing a similar property, taking depreciation into account. In real estate valuation, this involves considering the cost of acquiring the land plot and the construction costs, minus depreciation. However, legislation significantly limits the appropriateness of applying this approach to most real estate properties. This is further explained in National Standard No. 2 “Real Estate Valuation,” which states in Clause 6:
“The cost approach is appropriate for the valuation of real estate where the market for sale or lease is limited, for specialized real estate, including immovable cultural heritage sites, structures, transmission facilities, etc.”
In other words, the cost approach works well for specific assets — for example, engineering networks or unique structures — for which there is simply no active market. By contrast, applying it to an individual residential house would be inappropriate. Buyers in the market do not calculate how much it cost to build a house — they focus on the prices of comparable homes.
Familiarization with the Valuation Object: Why a Report Without Inspection Raises Questions
Clause 50 of National Standard No. 1 establishes a list of actions that a valuer must perform before beginning calculations. Among them is the requirement that the valuer must familiarize themselves with the valuation object.
The wording may seem quite general, but its meaning becomes clearer when referring to sector-specific legislation. Article 31 of the Law of Ukraine “On Property Valuation, Property Rights and Professional Valuation Activity in Ukraine” expressly states that the valuer is obliged to conduct an inspection of the valuation object. Therefore, in practice, Clause 50 of National Standard No. 1 is understood to imply the same obligation — a personal inspection of the property.
For the client, this has very practical significance. An inspection allows the valuer to verify the actual condition of the property, document characteristics that affect value, and ensure that the object corresponds to the submitted documents. Without inspection, it is impossible to properly account for renovation, degree of wear and tear, layout, location, or technical features. These factors often form a substantial part of the value.
Clients are sometimes surprised when a valuer requests access to the property or photo documentation. In reality, this is not an additional demand of the specialist, but compliance with legal requirements.
If it is not possible to conduct an inspection, the result is not formalized as a valuation report, but as a written consultation by the valuer. We discussed this in our review of the key provisions of the Law of Ukraine “On Property Valuation…”
The Contract — The First Stage of Valuation, Not a Mere Formality
Clause 51 of National Standard No. 1 expressly states that the first stage of an independent valuation is the conclusion of a contract.
This fully corresponds with the legislation. The Law of Ukraine “On Property Valuation…” in Article 7 and Article 10 establishes that valuation is carried out exclusively on the basis of a contract, and Article 11 clarifies that such a contract must be concluded in writing and must contain essential terms.
In other words, valuation does not begin with inspection, calculations, or report preparation. It begins with the formal legal arrangement of relations between the client and the valuation entity. Conducting a valuation without a concluded contract is considered a violation, especially when documents are being prepared for submission to a court.
Another important point: only the owner of the property or a person who lawfully uses it may act as the valuation client. This rule also follows from the Law and is directly connected with the conclusion of the contract. Therefore, situations where someone attempts to “order a valuation of someone else’s property” usually end in refusal or an offer to provide only a consultative opinion instead of a full valuation report. For more details on the use of consultative opinions in court instead of valuation reports, we recommend reading this professional article (in Ukrainian).
Client Responsibility for Source Data
There is a common belief that responsibility for the valuation result lies entirely with the valuer. However, Clause 55 of National Standard No. 1 emphasizes that the client may also bear responsibility if distortion of value resulted from the provision of inaccurate or incomplete source data.
In practice, this means that the valuer has the right to rely on the documents and information received from the client. If such data later proves to be false, responsibility for the consequences may shift to the person who provided it.
For ordinary property owners, this rule means something simple but important: documents and information provided for valuation must be as accurate and complete as possible. Attempts to “improve the situation” by concealing facts almost always create risks for the client. This is especially relevant when valuing state or municipal property, particularly for lease purposes. In such cases, issues of responsibility go beyond the professional activity of the valuer and may have legal consequences for the client.
A Valuation Report Is Not a Certificate, but a Multi-Page Document
Clause 56 of National Standard No. 1 defines the structure of a property valuation report. For many clients, this comes as a surprise, as they expect to receive a short one-page certificate with a value figure. In reality, a report is an official multi-page document with a clearly defined structure. Its content is regulated by legal acts and does not depend on the valuer’s desire to “add volume” or “make it look more impressive.”
The most important part for the client is the section “Conclusion of Value”. This is where the final value is stated — the figure used in notarial actions, court disputes, or accounting procedures. This section also contains the key information: identification and brief description of the valuation object, the purpose and valuation date, the client and the valuer, and other essential details.
All other sections serve a different function — they explain how the valuer arrived at this specific figure. They describe the detailed characteristics of the property, market analysis, applied approaches, calculations, and justification. In addition, the report includes appendices: copies of documents, source data, photographs, and other information used during the valuation, as well as the valuer’s authorization documents.
Conclusion of Value: What Must Be Included in the Report
Clause 60 of National Standard No. 1 sets out the requirements for the most important section of the report — the “Conclusion of Value”. For the client, it is important to understand that this section concentrates the core information about the property being valued.
The conclusion must state who the client is and who performed the valuation, as well as the main information about the property: its name and brief description, the purpose and date of valuation, the type of value determined, the methodological approaches applied, and the resulting value.
Particular attention should be paid to signatures. The conclusion must be signed not only by the valuer, but also by the head of the company or by the sole proprietor (FOP). In practice, documents can sometimes be found with only one signature when the valuer is simultaneously the head or sole proprietor. Such execution violates the requirements of the Standard — there must be two signatures, even if they are made by the same person.
Reviewing: An Additional Layer of Report Quality Assurance
Clauses 63 and 64 of National Standard No. 1 describe the process of reviewing — that is, an independent check of the report by another valuer. For the client, it is not necessary to know all the procedural details, but it is important to be aware that this process exists.
This is especially important when the valuation is used in court disputes or when contesting property value. The presence of a review provides an additional level of confidence that the report has been prepared in accordance with regulatory requirements.
According to Clause 64, the review should not include its own conclusion on the property’s value — it evaluates only the quality of the report’s preparation and its compliance with legal requirements. In other words, it is a control mechanism, not another valuation.
Summary: Key Points for the Valuation Client
We have reviewed only those points of National Standard No. 1 that are most important for clients or users of valuations. Professional valuers are well-versed in all the details of the regulations, but for a property owner or user, the main points to know are:
- valuation always begins with a contract and inspection of the property,
- responsibility for the accuracy of data lies not only with the valuer but also with the client,
- a valuation report is a structured document with a substantiated conclusion of value,
- mechanisms exist to check the quality of the report, such as reviewing.
Understanding these points helps the client obtain a truly accurate and legally valid valuation, avoid misunderstandings and risks, and correctly use the report in notarial, court, or commercial matters.
We emphasize again: we have highlighted only the aspects most relevant to clients. For professional valuers, the standard contains many additional details that ensure accuracy, justification, and legality of the valuation.
What is National Standard No. 1?
National Standard No. 1 “General Principles of Property and Property Rights Valuation” establishes the basic rules for conducting property valuations in Ukraine, defining key concepts, valuation principles, report structure, and general requirements for valuers’ work.
What is market value under Standard No. 1?
Market value is the price at which a property could be exchanged on the market for similar properties on the valuation date, based on an agreement between a buyer and a seller, after marketing, assuming each party acted prudently, knowledgeably, and without compulsion.
What does the principle of highest and best use mean?
The principle of highest and best use means that valuation determines the property’s value not by its current use, but by the use that is legally permissible, technically feasible, economically justified, and which maximizes the property’s value.
Which approaches are used to determine value?
Standard No. 1 provides for three main approaches: comparative (market analysis and similar transactions), income (valuation of income-generating property), and cost (calculation of the cost to create or reproduce the property, accounting for depreciation, usually for specialized properties).
Why must the valuer become familiar with the property?
Inspecting the property allows the valuer to verify its actual condition, record characteristics affecting value, and ensure that the property corresponds to submitted documents. This is a mandatory requirement of Standard No. 1.
Why is the contract the first stage of valuation?
According to Standard No. 1, valuation begins with a written contract between the client and the valuer. This is a legal requirement, without which the valuation cannot be considered correct.
Who is responsible for the accuracy of source data?
Responsibility for the accuracy of provided data lies with both the valuer and the client. If the client provides false or incomplete information, they may bear legal responsibility for the consequences of the valuation.
What is a property valuation report under Standard No. 1?
A valuation report is an official multi-page document containing structured information about the property, the valuation methods, and the final value. It includes the conclusion of value, sections explaining calculations, and appendices with documents and photographs.
What is a report review?
Reviewing is an independent check of the report by another valuer to control quality and compliance with Standard No. 1. The review does not contain its own conclusion about value but only evaluates the correctness of the report’s preparation.