Serbia: A new Law on Real Estate Value Appraisers entered into force

Earlier this year, for the first time in Serbian legislature, the Law on Real Estate Value Appraisers (the "Law") was enacted, which precisely regulates who, and under what circumstances, can become a licensed appraiser, as well as cases of mandatory evaluation of real estate by a licensed appraiser. The Law entered into force on 6 June 2017.

The main reasons for the adoption of this law are the harmonization of Serbian legislation with the requirement of the EU Directive on mortgage loans, and maintaining financial stability and avoiding systemic risk.

Namely, the imprecise evaluation of collateral values may result in the moral hazard in the evaluation value, a tendency of the collateral assess to be overrated, and the ocurrence of a serious systemic risk. Overvalued collateral leads to higher losses in the event of a default client. Although the banking sector in Serbia is highly capitalized, high level of NPLs has a negative impact on the balance sheets of banks and represents the main problem in the banking sector.

The aim of the Act is to create additional stability of the banking system, but also the development of markets and increased economic activity.

The Act introduces three important institutional mechanisms: the license for appraisal performance, the institutional framework for the supervision of the appraisers, as well as the code of ethics in this area.

Mandatory evaluation by a licensed appraiser is predicted at the conclusion of the loan agreement secured by a mortgage, and at the closure of other operations of financial institutions secured by mortgages, then in the process of determining the value of real estate in bankruptcy, as well as in the sale of real estate in the extra-judicial settlement in accordance with the Law on Mortgage. If in these cases the evaluation was not done by a licensed appraiser, such legal transactions shall be null and void.

It is important to note that the above provision does not exclude a possibility that the field of mandatory application of the Law extends to the appraisals that are carried out for the purpose of other proceedings (e.g., tax procedures, etc.) and needs (e.g., financial reporting and the like).

Download article