Overview on Real Estate Valuation in Brazil

Celso Amaral is the CEO of Amaral D'ávila Engenharia de Avaliações, a Leading Firm in the Brazilian real estate valuation ranking. In this article, he analyzes the real estate valuation practice in 2024 and the historical development of the field throughout his career.

I have been working in the field of valuation and engineering litigation support since 1984 and, as an entrepreneur, since 1990, accumulating 34 years’ experience and developing over 43,000 reports, studies and opinions both in Brazil and abroad.

Throughout all these years, I have witnessed the tremendous changes the engineering appraisal sector has undergone. I recall that in 1984 (I graduated in 1983), I searched in a phone directory (many younger colleagues have probably never seen one) for companies providing engineering evaluation services. I found only six listings with structured and robust advertisements. Essentially, there were almost no companies specializing in appraisals. Today, there are thousands online ─  truly remarkable growth.

Valuation in Brazil originated mainly from the judicial sector, where judges required experts to handle various cases involving family disputes (inheritances, divorces), contractual issues (price adjustments, claims), and compensation for expropriations, for example.

Back in 1984, the first IBAPE-SP (Sao Paulo section of the Brazilian Institute of Engineering Litigation Support and Valuation Experts) standards were just taking shape, and the current regulations of the Brazilian Association of Technical Standards (14.653) did not yet exist; they only came about in 2001. IBAPE-SP, along with regional entities spearheaded by IBAPE and private organizations, carried out incredible work over the years to formalize and improve valuation standards, aligning them with the best international practices. To achieve this, they were inspired by the standards of the Appraisal Institute, Pan-American, and European standards (RICS), turning engineers and architects specializing in appraisals into true asset valuation experts, regardless of the asset type ─ be it a small plot of land, large tracts intended for real estate developments, properties affected by partial expropriations or real estate-based ventures (corporate buildings, logistics centers, hospitals, etc.).

At the beginning of my career, I remember conducting a statistical analysis using multiple regression when appraising a medium-sized piece of land. We started the process at 4pm, and the analysis results were only finalized by the software the next day at 9am. Today, these analyses take just a few seconds, enabling appraisers to run numerous simulations in a fraction of the time.

Today’s professionals have nearly instant access to all kinds of technical literature, standards and specific training courses, including MBAs. They also benefit from unimaginable tools, such as dedicated software and fast computers, which have completely transformed how professionals work. These advancements have shaped the current generation of valuation experts, making them specialists in specific fields, much like medical professionals with their various specialties.

Around 21 years ago, my brilliant late partner João d’Ávila and I, dissatisfied with the lack of significant real estate databases for the vertical residential sector (buildings), developed the first platform for structured, georeferenced data using the Google Earth platform, launched in 2001 and called Geoimovel. Working with such a powerful database revolutionized our lives, doubling the size of our company with this new system, which became a reference in the real estate market (developers and financial institutions offering real estate credit). Eighteen years later, it was divested and acquired by the real estate portal Viva Real / Zap Imóveis, now part of the OLX Group.

Additionally, there has been significant progress in legislation, such as the Civil Procedure Code and CVM (Brazilian Securities Commission) normative instructions. Concerned with transparency and accuracy in valuations, the CVM issued regulations requiring annual valuations of assets belonging to Real Estate Investment Funds and Private Equity Funds. It also mandated property valuations used as collateral in credit operations (real estate and other transactions) at financial institutions, as well as for the assets of banks and private companies, including publicly traded corporations.

In other words, the demand for valuations has expanded, and consequently, the need for professional valuation services has grown over the years, keeping pace with the emergence of new and vast markets. For example, multinational companies are required to conduct periodic valuations of their assets, which are subject to scrutiny by audit firms. Therefore, these valuations must comply with all ABNT standards, which professionals must master along with the relevant valuation techniques.

In the judicial segment, valuations continue to be conducted by independent professionals who significantly assist the courts in analyzing primarily technical issues, often involving multidisciplinary teams. More recently, since the enacent of the arbitration law in 1996, and especially in 2019, when publicly administered companies were allowed to resolve disputes through arbitration proceedings, a new opportunity emerged for valuation engineers. I participated in the first arbitration proceeding involving both public and private entities. In this case, during a complex yet swift dispute (approximately six months), the Port Authority of the Port of Santos won all claims, which totaled R$3 billion (2019, nearly half a billion US dollars). This demonstrated the efficiency and relevance of this new tool for conflict resolution.

However, involvement in arbitration proceedings must be approached with utmost seriousness. Professionals must be technically prepared and possess a well-established support structure, as the discussions are highly technical, sophisticated and intense. This requires the analysis of an extensive array of documents, the preparation of numerous reports, technical notes, and discussions ─ often heated ─ with the opposing party, as well as with lawyers and arbitrators. These proceedings often include lengthy interrogations, requiring professionals to be prepared to endure significant psychological pressure. The arbitration segment is undoubtedly the pinnacle of the technical career for engineers or architects specializing in valuations!

Despite the numerous opportunities available for professionals in the valuation field, there are significant challenges and threats, as some sectors are experiencing notable impacts on the demand for valuations.

Valuations of homogeneous properties, such as standardized lots and houses, residential units (apartments) offered as collateral for mortgage-backed credit operations, have significantly declined due to automated valuations conducted by systems utilizing large databases based on neural networks and other sophisticated analyses.

The emergence of artificial intelligence can represent either a tremendous opportunity (for those who know how to harness it) or a significant threat, as the automation of processes and the speed at which results are delivered have become a reality. Moreover, automated processes often achieve more accurate results, with fewer errors than human valuations, as evidenced by a financial institution that conducted 800 conventional valuations and compared them to the results of semi-automated valuations performed by Geoimovel.

As a result, valuations of conventional properties intended for real estate credit have been greatly reduced, leaving thousands of appraisers with diminished demand.

So, what’s the solution? 

Continuous technical qualification is the key to navigating a crisis. By mastering valuation techniques, professionals can branch into diverse areas of appraisal engineering, avoiding reliance on sectors impacted by emerging technologies that are likely to compete with or eliminate traditional areas of expertise.

Professionals who invest in technical preparation and seek opportunities in non-homogeneous procedures are less likely to be affected by automation or the substitution of human expertise. These individuals will hold significant competitive advantages, as, for now, techniques combined with innovation and strategic analyses of complex cases cannot be replaced ─ even by artificial intelligence. While AI is a groundbreaking technology, it remains limited and inaccessible to most economic activities due to the high costs of developing proprietary AI systems. At most, AI will handle parts of routines, leaving the human professional to deliver the final touch.

In conclusion, appraisal engineering is poised to become even more relevant in a stable and developing country where the volume of business accelerates, public and, especially, private investments grow, and disputes become more frequent and sophisticated. This is what everyone hopes and expects for 2025, God willing.