Launched in 1990 by Reed MIDEM, a leading organizer of international professional markets, the annual MIPIM conference has come be viewed as a “must attend” event in the global real estate market. To read more about this year’s conference, click on the link below to access an article published on our affiliate company’s website (irvaluation.com):
1. UNVERIFIED OR UNSUBSTANTIATED SIZE INDICATORS
—Make sure square footage (or number of units) is reliable.
2. INCONSISTENT HIGHEST AND BEST USE
—Make sure the highest & best use is similar for the comparable data.
3. INCONSISTENT MARKET TRENDS OVERVIEW
—Make sure market information reflects risk.
4. LACK OF BRACKETING OF SUBJECT VALUE INDICATORS
—Make sure the data reflects the market – i.e., inferior, superior, and similar.
5. LACK OF DISCUSISON OF SUBJECT SALE, LISTING OR OFFERS
—Make sure the subject property history relates to the final value.
6. DISPORPORTIONATE FINAL VALUE TO THE MARKET
—Make sure the market reflects buyer purchasing power.
7. ALWAYS KNOW THE UNDERLYING LAND VALUE
—Determine whether the improvements do – or do not – have value.
8. LOPSIDED INCOME OR DCF ANALYSIS
—Make sure the assumptions are reflected in the risk rate.
9. EXTRAORDINARY OR HYPOTHETICAL CONDITIONS ABUSE
—Make sure these are not used to skew or slant the conclusions.
10. INAPPROPRIATE COMPARABLES
—Make sure the comparables reflect the subject’s buyer profile.
Canadian journalist Tony Wong recently spoke with Lance, a member of the U.S.-based Royal Institution of Chartered Surveyors, regarding the potential positive impact of the chaotic stock market on the housing sector. In the article, Lance discussed his belief that investment in real estate may benefit from the actions of those who are looking for a safe haven…
“The sell-off of stocks is a clear signal that people are not confident in the future and want safety now. What has also happened in the past declines in the stock market is a flight to quality,” said Dore. “Real estate tends to be the recipient as part of this flight. Real estate values are at all-time lows with returns at all-time highs. The convergence of excess cash due to stock sell-off and corporations flush with cash for investment will push these excess funds into the inevitable diversification to real estate.”
To read the article in its entirety, please click on the link below:
In his recent article entitled “Fair Value Revisited Based on Market Fundamentals and the Real Estate Investment Pyramid”, published in RICS Valuation Briefs online publication, Lance addresses the requirement of market-based criteria for International Financial Reporting Standards (IFRS) for Fair Value and the need to reconsider real estate fundamentals in order to address global challenges in the real estate market.
In 2011, a joint memorandum was released by the Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System (FRB); the Federal Deposit Insurance Corporation (FDIC); the Office of Thrift Supervision, the Department of the United States Treasury (OTS); and the National Credit Union Administration (NCUA). Entitled 2011 Interagency Appraisal & Evaluation Guidelines, these revised guidelines emphasize the importance of properly assessing transaction, collateral, and economic trend risk and make a greater distinction between regulatory requirements and prudent bank practices.
Reviews of appraisals and evaluations of assets require an effective risk-focused process. A proper review should be completed by the institution and must include:
- Attention to sampling;
- Objective bases for changes in market trends;
- Timely and sufficient monitoring of portfolio risk (as opposed to individual collateral unit risk);
- Mandated referrals to state appraiser regulatory authorities of suspicious activities;
- Sufficient supervision of evaluations and automated tools (if appropriate); and
- A testing of reasonableness of appraisal/evaluation methods, assumptions, and value conclusions.
Any appraiser providing a value must comply with the Uniform Standards of Appraisal Practice (USPAP). USPAP does not specifically call attention to evaluations. Evaluations are covered by the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA), and do not necessarily adhere to USPAP standards. Considering the additional interagency requirements, a proper evaluation by a highly qualified analyst must allow the financial institution to meet both regulatory requirements and prudent bank practices. Broker’s Opinions of Value are no longer valid. The following specific review services are necessary to meet both sets of standards:
- An in-depth assessment of USPAP Standards compliance;
- Modeling and technical evaluations;
- Risk-based, cost-sensitive work scope to AVM, evaluation, or hybrid solutions, including decision-point for subject inspection level and comparable observation;
- Annual monitoring of collateral value based on subject-market specific analytics;
- Coordination with bank staff in systems, deliverables and, graphical inputs including:
- Objective quantification of collateral risk, size, and complexity in the setting of work scope and report level;
- Review of appraisals and appraisal reports for evaluations (second opinion decision criteria, transaction risk evaluation, portfolio risk characterization, sampling and audit procedures);
- Development of internal controls for risk identification, monitoring, and management;
- Procedures for quality testing of appraisal and evaluation review process;
- Objective signaling of materiality for changes in market conditions (or credit deterioration);
- Sufficient, reliable, objective and timely market trend information;
- Objective criteria for mandated referrals for suspicious appraiser activity, including coordination of SAR filing and FinCEN reporting.
Overall, a qualified analyst would emphasize the careful balance of risk of making and losing a loan, portfolio effects, valuation cost, turnaround time, and value independence.
For additional information specific to appraisal or evaluation review guidelines, contact Lance W. Doré, MAI, FRICS – President, The Doré Group. firstname.lastname@example.org / 619.933.5040