It is not out of the question that Covid-19 has changed the way we live and how we perceive living as we know it. This also includes how we transact daily as well as how we invest in the long term. Everything that happened seemed like a wake-up call to reconsider what we have thought of as the standard in real estate.
This pandemic proved that there is still a lot to cover in terms of learning how to get the most out of your investment. It has also shown the capabilities and limitations of certain practices that have been established for a long time.
Real estate owners and professionals rely on valuations as the life-blood of their industry. There are multiple reasons why valuation demand is going to increase over the next two to five years as a result of the Covid-19 pandemic:
- Increased foreclosures – for all property types and businesses;
While it’s not unexpected that there will be instances like Covid-19 to cause a massive upward trend in property foreclosure, it did create something more than what investors have prepared for. In recent weeks, it has been said that it will be inevitable to see a further increase in foreclosures.
2. Bank failures – federally insured lenders have already started filing for bankruptcy;
Another matter that needs to be taken seriously is the financial hardship caused by this pandemic. It has affected them since banks make their business by loans and taking deposits. Since there is a halt in businesses, some federally insured lenders have started filing for bankruptcy.
3. Over-assessment by taxing jurisdictions – most jurisdictions have frozen assessments and will not recognize declining values;
Property taxes are based on the value of the property which includes its size, construction type, and other factors. Have the right factors and you can increase your property value so that you can get the best value when you want to resell your home. But since the pandemic struck, the valuation of your home and the property taxes you still need to pay did not change.
4. Bankruptcies – Helping with business dissolutions, potentially at unprecedented levels;
In the long period that some businesses were not able to operate, they had no choice but to file for bankruptcy. While this may seem like a bad move, it is what can help the owners to recover the most from what they lost due to the pandemic.
5. Need to mark-to-market – REIT have had stock prices drop as much as 80% in days, but their assets have not and will not see such declines;
Since Covid-19 is noticeably a different stock market pullback that has been seen in the past, there is a lot of adjustment being made, and some are even on the fly. REIT have reported that some stocks have dropped as much as 80% in a matter of days, but their assets have not and will not see the same declines.
6. Commercial Mortgage-Backed Securities – CMBS traders and investors should be concerned with the real-time asset values and foreclosure rates for those commercial assets;
This is something expected to happen. Since there is a halt in businesses for some time and with normal operation not seem to be a likelihood, many commercial businesses will have small to no income to use to pay off mortgages.
7. Valuation update due to abundance of caution rule – lenders have to get mark-to-market appraisals if there is any concern asset values have a measurable decline;
Lenders have the right to worry about getting the right value since there is unrest in the economic status of the country. They will ask for an update on the valuation so that they can still get the price and the right value even with what happened during the pandemic.
8. Assisting risk managers in the foreclosure process;
Risk managers will need a lot of help in assessing and recommending the next steps in any business. The right and updated valuation will help them get a better and fairer assessment.
9. Aiding in corporate mergers, issuance of stock, or revision of book value;
Having the right valuation will also help provide the right amount to provide for those who are affected by a merger to save businesses as well as livelihoods.
10. Helping prospective sellers determine acceptable selling prices, or prospective buyers decide on offering prices (negotiations between sellers and buyers);
Knowing the right value always helps not just the buyer but also the seller since the value they know is the right one. This will also create a relationship between the two and will be beneficial toward negotiations in the future.
11. Assisting the underwriter in establishing a value of security for any new mortgages (mortgage lending purposes);
Like risk managers, underwriters rely on data and valuation to provide the right estimate for a given property or mortgage. Providing the right valuation will go a long way for the parties concerned.
12. Supporting lease negotiations;
When things come back to normal and business resumes, haggling and negotiations will be expected. If the value is not updated, the owner of the property runs the risk of providing less of a lease than what is the true value.
13. For tax assessments;
Some businesses will want to update their property tax to be in line with the effect of Covid-19. If they suffered an adverse effect from the pandemic, they can appreciate a lower tax assessment in the coming several years.
14. For government acquisition of private property for public use;
Another way of saving owners from bankruptcy is to connect with the government. If they acquire the business for public use, the owner will not only get compensated for their investment with the right valuation, they also get a chance to help out people recover from the pandemic.
15. Assessing damages created by weather conditions or environmental contamination;
If an owner decides to sell their property after the pandemic, some buyers may be reluctant to pay for the full price. The latest valuation will help keep the seller from losing value.
16. Determining gift or inheritance taxes;
If the owner of the property may have been affected by Covid-19 and may have demised, finding the right valuation will be in order. This will help the beneficiary prepare further for receiving the gift or inheritance.
17. Ascertaining the feasibility of a construction or renovation program;
Even if the property is not directly affected by such a virus, like Covid-19, it will still be well to find the right value of the property if it was originally sought to be the site for constructing a new building or needs to be renovated. With the current state of the economy, people will be more reluctant to spend on investment especially when the return does not seem as feasible as before the pandemic struck.
18. Estimating the liquidation value for forced-sale or auction proceedings;
While it may be the last resort to save a business and its members, liquidation still needs to go through the right process. The most important step in this is to get the right valuation so that everyone concerned will receive the right amount of compensation.
19. Counseling a client on commercial real estate investment matters, such as goals, alternatives, resources, constraints, and timing;
Advisors need to have the right data to provide the most practical and wise decisions. This will also help establish their rapport with clients and integrity among their peers.
20. Advising zoning boards, courts, and planners regarding the probable effects of proposed actions.
The government will need all the help it can get to plan out the best way to recover from the effect of the pandemic in the economy. Providing the right valuation for real estate properties will help them in mapping out how to help or seek support from the industry.
The Covid-19 pandemic has affected everyone from all walks of life. All industries have been affected by this and have created a more cautious world. But what is important is that there are ways on how to bounce back and be wiser when things get back on its feet.
As for the real estate industry, the valuation will become a challenge in the years to come. As a welcome challenge, we can expect to see innovations and new processes that can help speed up and make the values as closest to reality as possible.
Knowing the right data will pay off in the long term especially when planning your next move. But collecting and sorting data can be confusing and time-consuming. Enriched Data can help you with Data as a Service and thus provide you with great options over the data around you. With the CARS System, you can easily streamline your process and make your plans solid as a rock. You can expect detailed and reliable data to help your business thrive in all areas and at any time.