Examining the Role of Risk And the Appraiser in Property Valuation

Corporate Finance & Restructuring | New York Law Journal (Reprint)

June 18, 2013

Reading between the lines of real estate headlines is a crucial skill for understanding what’s happening in today’s real estate market. In an economy filled with mixed signals, a thorough analysis of attendant risk and its impact on the value of real estate is the most important factor in valuation, and will help to explain the differences between the highs and the lows in the marketplace. A strong knowledge of the valuation process and advice from a seasoned, credentialed real estate appraiser will assist you and your clients in making well-founded real estate decisions.

While a cautious optimism exists in a real estate market that is showing signs of rebounding, the truth is non-prime assets are currently and will continue to experience deflationary pressure when those assets are revalued to current market values.

In New York City, there are many stories reporting a competitive marketplace at prices reminiscent of pre-recession values. Caution must be exercised not to assume that a rising tide of values will apply to all properties in all locations throughout the New York area. There are still many properties under considerable financial stress due to various circumstances that the appraiser needs to clarify and quantify as part of a well-reasoned appraisal process.

While a cautious optimism exists in a real estate market that is showing signs of rebounding, the truth is non-prime assets—those assets in secondary markets (secondary cities, and suburbs, for example)—are currently and will continue to experience deflationary pressure when those assets are revalued to current market values.

Various market reports are sending mixed signals regarding the four major asset classes (office, retail, apartments, and warehouse/industrial) as well as the overall housing market. A review of recent office sector statistics indicates only a few major cities with overall and meaningful average rent rate increase. These markets include New York City/Long Island, Washington, D.C., Houston, San Antonio and San Francisco. More importantly, the list does not include Boston, Chicago, Philadelphia, Northern New Jersey, Seattle, Los Angles, Atlanta and Tampa.


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