Income Value Guideline (IVG)

Income Approach Guideline (EW-RL) - The Income Approach Guideline (EW-RL) is a nationwide administrative regulation that standardizes the procedure for determining the income value of real estate. It specifies the provisions of the Real Estate Valuation Ordinance (ImmoWertV) for the income approach and contains binding guidelines on valuation parameters such as property interest rates, operating costs, and multipliers. The EW-RL is primarily intended for publicly appointed and sworn experts as well as appraisal committees.

The Income Approach According to the EW-RL

The income approach is one of the three standardized valuation methods under the ImmoWertV (alongside the cost approach and the sales comparison approach). It is primarily used for income-generating real estate:

Typical applications:

• Rental residential buildings (multi-family homes, residential complexes)
• Commercial properties (office buildings, retail, hotels)
• Mixed-use properties
• Social facilities with rental characteristics

Basic formula for the income approach value:

• Annual gross income (rent including charges, gross)
• minus operating costs (management, maintenance, loss of rent, depreciation)
• = Annual net income from the property
• minus return on land value (land value × property interest rate)
• = Net building income
• × Multiplier (depending on remaining useful life and property interest rate)
• = Building income value
• • Land value
• = Income value

The EW-RL specifies how property interest rates, operating cost rates, and multipliers are to be determined-in particular by referring to the purchase price databases of the expert committees.

Significance for Expert Committees and Valuation Practice

The EW-RL has the following practical significance:

• Standardization: Uniform application of the income approach throughout Germany
• Data basis: The EW-RL requires that property interest rates be derived from actual purchase price transactions - the expert committees publish this data in real estate market reports
• Court-ordered appraisals: The application of the EW-RL is standard in valuations for courts, estate settlements, and foreclosures
• Tax Valuation: The tax office bases its property tax and inheritance tax assessments on the standardized methods, even if it uses its own simplified procedures

EW-RL and the New ImmoWertV 2021

With the amendment to the Real Estate Valuation Ordinance (ImmoWertV) in 2021, valuation methods were modernized. The EW-RL was revised accordingly: The new version takes into account current market developments such as the increased importance of capitalization rates and the use of discounted cash flow methods as a supplement to the traditional income approach.

The updated ImmoWertV now stipulates that, in principle, multiple methods should be used in the valuation if the available data permits. For experts and appraisal committees, this means a more in-depth analysis of market data-and higher requirements for the transparency of the valuation.

Practical Tip for Property Owners in Nuremberg and Franconia

The Nuremberg Property Valuation Committee publishes the annual Nuremberg Real Estate Market Report, which includes current property yields for the metropolitan region. We recommend that owners of income-generating properties use this data to review valuation offers.

An expert appraisal in accordance with the EW-RL is indispensable in cases of inheritance disputes, divorces, or major transactions-and provides you with a legally sound basis for price negotiations. We would be happy to connect you with certified experts in the Nuremberg metropolitan region who are familiar with regional market indicators and prepare appraisals in accordance with current standards. The cost of a full appraisal in accordance with EW-RL generally starts at 1,500 euros and increases with the value and complexity of the property.

Frequently Asked Questions

When is the income approach used?

The income approach is the preferred method for properties where the return on investment is the primary focus-that is, rental properties and commercial properties. For owner-occupied single-family homes, the cost approach or sales comparison approach is more commonly used.

What is the real estate interest rate and how is it determined?

The real estate interest rate is the market rate of return on invested capital for a specific type and location of real estate. It is derived by the Appraisal Committee from actual purchase price transactions. A low real estate interest rate means high purchase prices for the same rent (low-interest-rate environment); a high interest rate means lower purchase prices.

Is a capitalized income valuation report binding for the purchase price?

No. An appraisal in accordance with the EW-RL is a recognized, transparent valuation method, but it does not constitute a binding purchase price. Sellers and buyers are free to negotiate. The appraisal serves as a sound basis for price negotiations and is admissible in court in the event of a dispute.

What training is required for an appraiser to conduct appraisals in accordance with the EW-RL?

In Germany, there are two main qualification paths: public appointment and swearing-in by the Chamber of Industry and Commerce (IHK) or the Chamber of Architects (publicly appointed and sworn expert) and certification according to DIN EN ISO 17024, e.g., by HypZert, DEKRA, or TÜV. For appraisals admissible in court, the publicly appointed and sworn expert standard is generally required. For bank loan-to-value appraisals, HypZert certification according to CIS HypZert (F) is standard in the industry.

Operating Costs According to the EW-RL

A central element of the income approach is operating costs, which, according to the EW-RL, must be deducted from the annual gross income. They include:

• Administrative costs: Costs of commercial and technical management (for residential properties, typically 200-400 euros per residential unit per year)
• Maintenance costs: Expenses for ongoing repairs and maintenance measures (set at a flat rate according to the EW-RL, depending on the building’s age and living area)
• Rent loss risk: Risk buffer for vacancies and uncollectible rent receivables (typically 2-5% of gross income)
• Depreciation (land value interest): Is deducted from the net building income to account for land value interest

The EW-RL establishes standard values for these cost items, which may vary by region. For the Nuremberg market, it is always advisable to compare these figures with the market data published by the Appraisal Committee, as standardized average values do not always fully reflect regional characteristics-such as above-average maintenance costs for older buildings or particularly low vacancy rates in certain neighborhoods.

Discounted Cash Flow Method as a Supplement

In addition to the traditional income approach according to the EW-RL, the Discounted Cash Flow (DCF) method is increasingly used in practice, particularly for commercial real estate and portfolio valuations. The DCF method forecasts the specific cash flows of a property over a defined period (typically 10 years) and discounts these to their present value. Unlike the traditional income approach, which uses normalized average values, the DCF method takes into account special circumstances such as lease terms, planned renovations, or temporary rent waivers. The ImmoWertV 2021 has created the option to use the DCF method as a supplementary method alongside the income approach. For owners of larger income-generating properties in Nuremberg, the combined use of both methods offers a more robust and market-driven valuation basis.

Income Value and Purchase Price Determination in the Nuremberg Metropolitan Region

In the Nuremberg Metropolitan Region, property interest rates-the key parameter in the income approach-have fallen in recent years due to the persistently low interest rate environment and have recently risen slightly again. The Nuremberg Appraisal Committee publishes current property interest rates by location, year of construction, and type of use in its annual real estate market report. Owners of apartment buildings, mixed-use buildings, or commercial properties in Nuremberg, Fürth, or Erlangen should be aware of this data-because a change in the property interest rate can significantly influence the income value and thus the achievable purchase price. We recommend commissioning a current income-based valuation report before making a decision to sell and comparing it with the market data from the Appraisal Committee.

Back to the Real Estate Glossary.