Sareb & The Banks’ RE Arms Commission 3x More Appraisals

2 November 2016 – Cinco Días

During the first half of this year, Sareb and the real estate subsidiaries controlled by the banks commissioned appraisals for 845 properties per day. That figure represents a threefold increase compared to the same period last year. In other words, a real boom in the number of appraisals being performed for real estate portfolios in the sector. This sharp increase has been driven by the Bank of Spain, in its quest to ensure that asset prices reflect the reality of the market, with the dual aim of facilitating their sale and preventing deceptive quantifications in the value of assets on the balance sheets of entities in the industry.

Two specific pieces of regulation have been developed to acheive these aims. Firstly, new accounting regulations for Sareb, which was notified last October that it must reappraise its entire portfolio at market prices in just a few months: at least 50% of its properties had to be reappraised in 2015 and the remainder this year.

Secondly, the Circular 4/2016, whereby the institution governed by Luis María Linde strengthened the coverage and provisions that the financial institutions have to make and which requires them to perform an updated valuation of the real estate collateral securing their loans.

Although the financial institutions have already started to review the value of their balance sheets, for the time being, the regulations have had more impact on the field of appraisals involving Sareb. That is according to the Spanish Association of Value Analysis (AEV), which groups together the main appraisal companies in Spain, which are responsible for performing 90% of the appraisals conducted in the country. According to the association, during the first half of the year, Sareb and the asset management subsidiaries of the major Spanish banks commissioned 152,166 appraisals in total.

That figure far exceeds the 47,256 appraisals that the same group of companies requested during the first half of 2015. The rate has tripled in just one year, with the intermediate step taken during the second half of last year, when 119,942 appraisals were requested, after the so called bad bank was notified about the contents of the Bank of Spain’s new accounting legislation and the short calendar for its implementation.

From the appraisals carried out for Sareb and the banks’ real estate companies during the first half of this year, 46,895 correspond to full appraisals, which are those that include a visual inspection of the property (even if internal access is not possible) as well as the performance of the typical checks for mortgage valuation purposes (such as checking that the property exists, ensuring that the urban planning situation is up to date, etc.), say sources at AEV.

Another 16,676 valuations were performed using automatic templates. Sources at the AEV explain that this type of appraisal tends to be used to carry out valuation updates for large groups of properties using statistical methods.

Finally, another 88,525 appraisals were performed using other, automated, mass-valuation methods, including mathematical models, online valuations and the so-called desktop valuations, which are performed remotely using photographs and street views such as those supplied by Google Street, for example. (…).

The figures published by AEV show that the analysis of these portfolios has resulted in low valuations this year: the 47,000 properties valued during the first half of 2015 had a combined appraisal value of €11,380 million, whereas the 150,000 properties valued during the same period in 2016 have a combined appraisal value of €21,654 million. In other words, triple the number of assets correspond to just twice the appraisal value.

Original story: Cinco Días (by Juande Portillo)

Translation: Carmel Drake