Within the Caribbean region, most of us are used to house values going up. However, we are all now aware of the slowing down of the property market after consecutive years of growth. Within this article we are looking at how a valuer/appraiser values in times of uncertainty.
Valuing in an uncertain market such as a downturn like we are experiencing today, a valuation carried out by a Chartered Valuation Surveyor is not a real estate appraisal, it’s the maximum amount that a lender should secure against a property but it does assume what price the property could be re-sold at in the market as at today’s date assuming a willing buyer and a willing seller .
We have seen the length of the marketing period increase, (that is, the time it takes to sell a piece of real estate) move out considerably over this period of uncertainty and in some circumstances this has increased more than 100%.
In Barbados, we have also seen an over supply of middle income condominiums and villas and the original prices secured when the schemes were first released in 2007/8 are no longer being achieved and developers are now open to negotiations and headline pricing has come down. When valuing an individual unit where an identical apartment sold 18 months prior does not necessarily equal to today’s market value and a valuer must have consideration for the global economic climate and the difficultly in achieving financing in the current market. Banks were in the past willing to work with debt to equity ratios of 75:25, this has now changed to 55:45.
In a downturn, such as we are experiencing, there are reductions in the number of transactions and consequently there are fewer comparables and this offers challenges to the valuer to get a feel for current prices. It is important for valuers to have relationships with real estate agents as they are the ones active in the market aware of offers received and which properties are distressed sales and which can add distortion to market values where this clarification is not known.
Development and sales peaked in the second quarter of 2008 and we are still waiting to see what the future holds. Receivers and Administrators are now active in the market, so that should shift some of the current over supply and generate a further downward price correction.
In a downward market we become even more aware of location, location, location as properties in prime locations are more likely to hold their values or be affected by a lesser percentage change over a secondary neighbourhood.
When looking for a valuer one should have consideration for their independence, are they also selling this piece of real estate? And their competencyÂ what qualifications do they have and how active in the market are they?
Jennifer Dunn is an Associate Director at BCQS International. Please revert to www.bcqs.com for further information.