There is both an art and a science to valuing real estate, which are easily overlooked or misunderstood from the outside.
Today, a home buyer or seller can enter a handful of details into an online real estate platform, which in turn will provide an approximate valuation of a house or apartment. Needless to say, such estimates are unreliable – plus, they do a disservice to the technical training needed to establish a solid market value for land or real estate.
Depending on the type of appraisal, sales comparisons, revenue capitalization, land value, and construction costs can be assessed as part of an accurate appraisal. Additionally, given how the value and benefits of real estate are realized over a long period of time, social and economic trends must also be carefully considered. Of course, the complexity of the process is what generally makes qualifications by bodies such as the Royal Institution of Chartered Surveyors (RICS) necessary for those who value property for a living.
So why make these remarks now? Simple – because the coronavirus pandemic has brought real estate valuations back into the limelight.
Due to confinement and social distancing measures, it has become more difficult for professionals to access a property in order to carry out an in-depth assessment. Instead, there has been an increase in “virtual valuations”. And with the UK back in lockdown – albeit with renewed hope that a vaccine will arrive soon – it is widely accepted that we live in a ‘new normal’; a world where digital tools and services are increasingly important instead of physical meetings and easy travel.
When it comes to real estate valuations, this trend raises two interesting questions. First, can we trust virtual assessments to reliably replace traditional on-site methods? And second, what impact may COVID-19 have on how property is valued in light of the changing demands of buyers, tenants and businesses since the start of the pandemic?
The rise of virtual assessments
According to Zoopla, between April and May 2020, there was a 90% increase in the number of virtual real estate appraisals performed by agents. Indeed, almost all sellers said they would rather have agents appraise their properties remotely than doing a physical site visit; only 2% said they would be happy to meet an agent in person.
Virtual appraisals involve an individual – usually the owner – giving a real-time tour of a property to an agent or appraiser via a video platform such as Zoom. From there, the professional can glean information about the size of the property, how many rooms it has, and the general condition it is in. He can also assess property features, available storage, surrounding buildings, and outdoor space.
The sharp increase in virtual appraisals in 2020 made it possible to maintain the listing of properties on the market and to conclude transactions. They have enabled agents and lenders to move forward with this essential part of their respective operations.
Are they reliable? In theory, there is no reason why surveyors or appraisers cannot obtain the necessary information about properties via video calls rather than visiting the premises themselves. Yet there are challenges that need to be recognized.
On the one hand, it will be the professional’s responsibility to carefully guide his on-site cameraman throughout the process. They might need to take the camera to various nooks and crannies; multiple coin angles will be needed to get a clear idea of its condition and to highlight any potential issues. There can, of course, be issues that the owner (and virtual tour guide) don’t want the appraiser to see, so care should be taken to explore every nook and cranny carefully.
Camera lenses can distort our perspective of a space, while poor lighting can mask some issues in a video call. These issues are more difficult to overcome, but again, a thorough and diligent methodology should ensure that professionals can always have a fair appreciation of the property and its condition.
In addition, the data that will inform a large part of the evaluation remains accessible regardless of the virtual visit of the property. From exact square footage to area sales comparisons, a surveyor gets much of what they need from these numbers, which are available to them from their laptop.
So there is no reason not to trust the reliability of virtual assessments. Much like virtual tours for potential buyers or tenants, they are not ideal and will never fully replicate the experience of a site visit; yet, when necessity calls for it, these are important ways to keep the real estate industry moving.
How will COVID-19 affect property values?
Beyond the practical business of property appraisals, COVID-19 will also impact this area through broader social implications.
Over the past nine months, millions of Britons have worked from home, while socializing has been made difficult, if not impossible. As a result, people are spending more time at home, which affects their demands for buying and renting property – these demands, as a fundamental market driver, will affect valuations.
For example, home buyers are looking for more space in their property; in July, real estate agent Dexters surveyed buyers to establish their “non-negotiable” requests. The best result was a spare room they could use as a home office while working remotely, followed by an outdoor space in the form of a garden, rooftop terrace or balcony. The company added that the preferences marked a major shift from previous surveys when “vanity factors” (such as exterior appearance or kitchen size) were ranked higher.
While people now expect remote working to remain the norm in the future – at least to some extent, with employees splitting their time between the office and home – there is also a trend of buyers to look further afield. Freed from daily commutes, homebuyers could consider towns and cities farther from where they work.
All of these social trends will affect real estate valuations. Again, the skill lies in understanding and keeping up with market developments – this will in turn ensure that a house, apartment or commercial site can be given an accurate value.
Ultimately, as the real estate market undergoes a wide range of fascinating and unexpected changes, when it comes to appraisals, the need for traditional training and education has never been greater. Only those proficient in the consistent technical aspects of property valuation will be able to adapt to the sudden flows of the wider market – these skills have never been more valuable.
Mark Shepherd, course director for the University of Manchester’s blended online MSc Real Estate course.