POTENTIAL MARKET

Despite the noticeable development of appraisal activity in Azerbaijan in recent years, this business still does not enjoy recognition and demand from consumers. Up to now, it is customary in this country to apply to brokers or realtors for appraising the cost of housing, to resellers or dealers for assessing the price of used cars, etc. Meanwhile, in most of the developed countries all manipulations with the movable and immovable property are usually made based on the conclusion of a qualified professional who can provide a professionally informed opinion about the real price of an asset. Certain hope for the revival of this market is associated with the adoption of amendments to and changes in the current law "On Appraisal Activities," but the responsible bodies seem to be unable to reach a consensus and the adoption of the document by the Parliament has been postponed indefinitely.

It should be noted that, in the opinion of participants in the appraisal activity market in Azerbaijan, the law on the whole meets the realities of time and is adequate to the existing demand. Thus, according to Elcin Samadli, an expert of the Society of Azerbaijan Appraisers (AQC), market participants are mainly engaged in the valuation of collateral for loans, such as cars and real estate. This activity constitutes the better part of the business portfolio.

Such a prevalence is easily explained by the development of lending in Azerbaijan and the growth of the scope of mortgage. According to the Azerbaijan Mortgage Fund (AMF) under the Central Bank, more than 430 mortgage loans were provided in March alone. Since the beginning of financing, the AMF has provided mortgage loans worth over 535mn manats. As regards auto loans, there is a different situation in this sphere due to the CBA's known decisions aimed at imposing restrictions in this area of activity. Though experts believe that the activity of banks in the field of auto-lending will simply shift the focus towards leasing companies, whose business is only expected to benefit from this, and the demand for appraisal services will not be lower after all.

In addition, a substantial part of the appraisers' orders is to determine the cost of various assets in business transactions including intangible assets (intellectual property). "There is a lot of prospects on our market - appraisers are keen to take advantage of the demand that exists in the field of business valuation, financial statements, securities and investment projects including at the pre-investment stage," E. Samadli said.

As already noted, the activities of appraisers in the country are regulated by the law "On Appraisal Activities," which came into force in 1998. Now we are discussing a bill on amendments and additions to the law. In November 2012, the Economic Policy Committee of the Milli Maclis [Azerbaijani parliament] decided to establish a working group tasked to improve the bill and disseminate it among the relevant state bodies to get their opinions. "The work on the amended law has been carried out for a long time, and the AQC is actively involved in this process. Unfortunately, it is impossible to talk about specific dates and timing of the adoption of this document, but we hope that the new law will help to eliminate the existing shortcomings in the regulatory framework of appraisers' activities and expand the tools of our work," E. Samadli said.

According to Irada Sukurova, the Executive Director of the Society of Azerbaijani Appraisers, as few as 59 appraisers have been certified in accordance with the international standards in Azerbaijan up to this day. Moreover, only residential appraisers were certified at the first stage as they are in high demand. "Now appraisers in the field of commercial and personal property undergo the process of certification too," I. Sukurova said.

Meanwhile, experts argue that the active participation of audit firms in this field is one of the factors hampering the development of the market. Thus, large companies often turn to recognised auditors - also known as the "Big Four" (Pricewaterhouse Coopers, Deloitte, Ernst&Young, KPMG) - mainly because they have an established partnership with one of them, and their findings have a higher priority within the framework of corporate policy. Importantly, the local offices of major auditors, having no professional appraisers, are often forced to invite them from abroad, which is inefficient in the long run. However, there are qualified appraisers in Azerbaijan too.

The low demand for appraisers' professional services among the population is another serious problem, according to the expert. "In making private transactions, citizens habitually turn to brokers, which often prove to be unqualified persons who declared themselves experts. Unfortunately, consumers do not always understand that hiring a professional appraiser leads to significant risk minimisation and much more meaningful results," E. Samadli said.

Risks and the need to reduce them are the reasons for which the appraisers develop cooperation with the insurance community, the expert said. "Now appraisers begin to increasingly work towards insurance of their liability. Currently, the relationship between the customer and the appraiser is regulated by the contract concluded. If the valuation performed has led to any damage, this bags the question of who will cover it. Most often, however, the amount indicated in the contract is quite small and insufficient to provide compensation for all losses sustained by the client. Appraiser's liability insurance is an important tool that will increase the level of confidence in the market," E. Samadli said.