Overly conservative valuations by bank-appointed appraisers are causing agreed property transactions to fall through and are holding back the real estate market, says Cayman realtor Sheena Conolly.
Addressing a panel of real estate practitioners at the RICS Cayman Property & Construction Conference on Thursday, the broker/owner of Sotheby’s International Realty said from the audience, “It’s really a fascination for me that you can take four or five RICS appraisers on the same property and get such a variety of opinion.”
Ms. Conolly said estate agents often experience having what appears to be a successful transaction, only to see it fail when the valuation of the property for the bank comes in lower than the agreed price.
“What we are seeing in the market is that you are getting a willing buyer and a willing seller who will set market value. [Then] the bank will appoint an appraiser and the appraisal will come in short. We a lost significant amount of business in my office this last year. And I do believe that many of the CIREBA members here have had a similar effect,” she said.
Her comments suggest that Cayman banks, which in some cases have been stung by high property valuations as the property market deteriorated after the financial crisis, are now increasingly risk-averse and instructing property appraisers to be restrained in their valuations.
Simon Watson, partner at Charterland, noted that when comparable valuation or transactional data is unavailable, property values can be outside of the expectation and cause complaints. However, every practice should have a complaints policy in place for such cases, he added.
Mr. Watson pointed out that “just because a price is agreed [between a buyer and a seller], it does not set market value.” There is a wider definition of market value, which includes the need to act prudently with full knowledge of the market to arrive at a value, he said.
Ms. Conolly questioned how the market can be moved forward if the appraisals are not arriving at the price buyers and sellers already agree on.
“I understand from our industry that many of the leading offices are having this problem and it’s happening regularly, and as the market moves forward, we are losing a lot of business,” she said. “The banks are now directly instructing appraisers and choosing them. And we believe in many instances are keeping the market down and strangling it and stopping it from moving forward.”
Some appraisers are new to the island and not familiar enough with the market and the significant differences, such as upgrades or renovations, between seemingly similar properties, she said. “Yet they are the ones who are making the determinative decision whether the business should proceed or not.” However, Ms. Conolly said she welcomes discussion and dialogue between the real estate industry and the appraisers.
Mr. Watson agreed that greater dialogue would be beneficial. For instance, formalized access to all updated information through the realtors’ CIREBA system would be a great help. Since it can take a few months for sales to be registered, relying on “old” data in the land registry can have an effect, especially in a growing market, he explained.
The second RICS Cayman Property & Construction Conference at the Marriott Beach Resort attracted about 200 delegates.