Residents' appraiser: the rent, the scoring of the apartments and the order of choice

What the residents' appraiser does

The developer has its own appraiser. The residents' appraiser represents the apartment owners only, and the work covers four areas:

• The rent appraisal: the rent that the apartment owners will receive from the developer, from the evacuation until the new apartment is handed over.
• Scoring the apartments in the compound, which sets the order of choice of the new apartments.
• Checking the viability and the consideration: whether the project is economically viable, and whether the consideration the developer offers is reasonable in relation to the project.
• The amount of the guarantees, first among them the rent guarantee.

The appraiser's two main decisions, the rent and the order of choice, determine how the family will live during the construction years and which apartment it will receive at the end. A mistake in them is very hard to correct after the table has been signed and the apartments have been allocated.

The appraiser works together with the residents' lawyer and with the supervisor acting for them: the lawyer anchors the mechanisms in the agreement, and the appraiser provides the figures and the tables on which they rely.

The residents' appraiser as the agreed appraiser

It is advisable for the agreement with the developer to provide that the residents' appraiser is also the agreed appraiser for the rent and the scoring. An agreed appraiser is an appraiser whom the apartment owners and the developer agreed on in advance, and whose determinations on the matters defined in the agreement bind all the parties.

The practical effect: there is no contest between a residents' appraisal and a developer's appraisal each time a sum needs to be set, and all the apartment owners work by the same table and the same rules. For the mechanism to be fair, the agreement needs to set in advance what the appraiser decides, on what timetable, and how the apartment owners comment on the table before it is final.

The rent appraisal

At the evacuation stage the apartment owners move to a rented apartment until the new apartment is handed over. The developer pays the rent, and the question is how much. The residents' appraiser prepares an appraisal of the appropriate rent for each apartment, based on apartments of similar size and features in the area of the project, close to the date of the evacuation. The amount should make it possible to rent a similar apartment near the compound or in a similar area.

The guides of the Ministry of Construction and Housing and of the Government Authority for Urban Renewal recommend that the agreement also set:

• a mechanism for updating the rent in line with changes in the rental market, throughout the construction period;
• payment in advance and on fixed dates;
• cover for the moving costs, to the rented apartment and from it to the new apartment;
• an autonomous bank guarantee for payment of the rent until the new apartment is handed over.

The rent appraisal is also the basis for the amount of the rent guarantee: the monthly rent multiplied by the number of months of the construction works. The details are on the Standard guarantees page.

Scoring the apartments and the order of choice

In pinui-binui all the apartment owners in the compound receive apartments in the new buildings, and the most sensitive question is who receives which apartment. The appraiser scores each existing apartment in the compound, and the order of choice of the new apartments is set by the ranking that results from the scoring: the apartment owner who received the highest score chooses first, followed by the next in line, and so on.

What goes into the scoring

Scoring is meticulous work. The appraiser visits each apartment and takes into account the features of the apartments in the existing state (as the apartments are today):

• the type of apartment: a regular apartment, a garden apartment, a roof apartment, an apartment with attached areas;
• the area of the apartment, the floor and the number of frontages;
• the apartment's aspects (directions the apartment faces);
• other features, such as the condition of the apartment, a storage room or parking.

Later the appraiser also scores the new apartments according to the mix the developer offers, and divides them into types, so that each apartment owner chooses from the apartments that match the apartment they had. In some agreements the scoring is also used for balancing payments, when the apartment chosen differs in value from the apartment to which the owner is entitled.

This way the apartment owner stays in surroundings they know, keeps what they had in the old apartment and improves on it. A table built on these principles, and presented transparently to all the apartment owners, reduces disputes between neighbours and makes it easier to collect signatures.

Some agreements set the order of choice by lottery or by the order of signing the agreement, and the guide of the Ministry of Construction and Housing mentions these two methods alongside a determination by an appraiser acting for the residents. The advantage of scoring by an appraiser is that it links the order of choice to what each apartment owner had in the existing state, and not to luck or timing.

This is a summary only. Every case should be reviewed individually with a lawyer who specialises in the field.

Checking the viability and the consideration

Before the developer is chosen and during the negotiation, the appraiser checks whether the proposed project is economically viable, and whether the consideration for the apartment owners is reasonable in relation to the developer's expected profit. The check is made according to Appraisal Standard 21 of the Appraisal Standards Committee, which sets how the economic viability of pinui-binui is examined. This way the apartment owners know whether the developer's promises are realistic, and whether there is room to ask for more.

The residents' appraiser is different from the pinui-binui appraiser appointed by the director of the Government Authority for Urban Renewal Pinui-Binui Law, sections 2A-2B. The Authority's appraiser is appointed when there is a dispute with apartment owners who refuse to sign, to determine whether the transaction is viable. The explanation is on the pinui-binui page.

The appraiser throughout the project

1. Choosing a developer and negotiation

   Checks the viability and the consideration in the offers, and takes part in drafting the rent and scoring mechanisms that will be written into the agreement.

2. Scoring the existing apartments

   Visits each apartment in the compound, prepares the scoring table and presents it to the apartment owners for comments before it is final.

3. After the plan is approved

   Scores the new apartments according to the approved mix, and divides them into types.

4. Before the evacuation

   Prepares the rent appraisal and sets the amount of the rent guarantee.

5. Choosing the apartments

   Accompanies the choice in the order of the scoring, and checks that the allocation matches the rules set in the agreement.

When and how to choose a residents' appraiser

As early as possible, before the developer is chosen or at the start of the negotiation. An appraiser who joins at this stage influences the consideration, the mix and the rent and scoring mechanisms that will be written into the agreement. An appraiser who joins after signing works by rules that others have set.

Usually the residents' committee chooses the appraiser in an orderly process, with the support of the residents' lawyer. In most projects the developer pays the appraiser's fees, but the Government Authority for Urban Renewal recommends that the agreement with the appraiser be signed between the apartment owners and the appraiser, and that it state that the appraiser represents them exclusively and as their fiduciary.

What to check before choosing

• that they are a real estate appraiser listed in the Register of Real Estate Appraisers;
• experience in projects of a similar scale, and with scoring tables that the apartment owners accepted;
• that they do not work for the developer in the same project, and that they disclose in writing any other connection to the developer;
• a written agreement that sets out the services, the fees and who pays them;
• consent to serve as the agreed appraiser for the rent and the scoring, and defined working procedures: a visit to each apartment, presentation of the table to the apartment owners and time for comments.

Frequently asked questions

This is a summary only. Every case should be reviewed individually with a lawyer who specialises in the field.