In an economic climate where real estate values are steadily increasing and transaction volume is high, one does not have to be an appraiser to get a comfort level regarding their property value.
I bought my home three years ago; I know that the County continually increases their opinion of my home’s value. Homes are frequently bought and sold in my neighborhood. Unemployment in Texas has been at unprecedented lows for the last several years and the economy has been flourishing.
If you had asked me the value of my home in January 2020, I would not have had to do any research or analysis to tell you, it is probably worth more than I paid for it in 2017. If you asked me today, my confidence level would not be as high. At a minimum, I would need to check my gut opinion against some actual data.
But how could I truly feel confident about the value of my home, if no one were buying or selling homes in my neighborhood?
Many commercial real estate owners, investors, lenders, etc. find themselves in this position today. The need for a confidence level in their property’s value is higher than ever, but transaction volumes in the U.S. have diminished significantly since the COVID-19 business disruption. Depending on the property type and location, it is possible that a current observation of a recent comparable sale, may simply not exist. If there are a few sales that are truly comparable, which have sold in the last month, that information is solid gold.
However, are a few data points statistically relevant? When does that data become obsolete? The sentiment of buyers and sellers seem to be shifting rapidly, as does the information in the news cycle. Economists have talked about “V” recoveries, “W” recoveries, “U’s” and the Nike swoosh. How can one have confidence in the value of their commercial real estate portfolio?
CBRE’s Valuation and Advisory Services represents the largest commercial appraisal firm in the U.S. and the world. We have thousands of clients that count us to be a trusted advisor in times such as these. We are frequently asked: how are you approaching your valuations in this economic climate? How can you be confident in your opinion of value?
We believe that we are uniquely equipped to provide credible guidance to our clients, for a variety of reasons, including our proprietary data and technology. One of our most powerful resources is the sheer volume of appraisers that we have, sitting in more than 100 offices throughout the U.S. These 600+ experts are talking with buyers, sellers, tenants, investors and lenders every day. They have in-depth discussions with these market participants about the most complex valuation issues and get to hear a very broad sample of the most relevant market sentiment.
Using our proprietary technology, we have been able to capture each of these interviews and aggregate the responses. The number of observations reaches a statistically relevant level and observations are being captured in real time. Furthermore, the market sentiment is classified by property type, subtype, market, sub-market and investment class.
This allows our clients to hear the sentiment of the market that is most important to their valuation problem. Have capitalization rates moved in the last month for cold storage in Austin, TX? Is market rent stable for medical office in Los Angeles, CA? These are the types of questions for which our clients need reliable and current answers.
Ultimately, appraising real estate is about accurately predicting the sales price that a buyer and seller would negotiate on a given date. Therefore, all valuation research and analysis revolve around knowing the minds of these two parties at that time.
The only way to know this in any economy, is to listen.