The Bank of Spain requires maximum prudence in home valuations

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The Bank of Spain requires maximum prudence in home valuations





© Unidad Editorial, S.A.



He believes that the absence of transactions due to the market stoppage prevents realistic valuations and advises not to apply the comparison method and even “refuse the order”.

The economic slowdown and the long confinement suffered by Spanish homes is causing a significant deterioration in the Spanish real estate market. The Bank of Spain has sent a letter to the associations of appraisal companies, AEV and Atasa, in which it makes several recommendations for the situation generated by Covid-19.

In its letter, dated last Friday, April 20, the Bank of Spain assures that “in the current situation, as the transactions have practically disappeared, there are no updated witnesses that reflect the new situation. In the future, we hope that soon, in when the recovery phase of the transactions begins, the price level that can be expected will be displayed. “

Alternatives

In this transitional period of paralysis of home sales, the Bank of Spain considers that appraisal companies should not “apply the comparison method, and should use an alternative method when it is possible or appropriate or refuse the order”.

In any case, the Bank of Spain assures in its brief, “a specific warning should be included referring to the extraordinary current situation.”

The institution insists that until the transactions reach a sufficient number to conclude that the market has normalized, “there will be a high degree of uncertainty about the valuations.”

In this scenario, the Bank of Spain asks appraisers to “take precautions on updated transactions or comparable offers, being especially careful in determining the adjustment for negotiation of the latter.”

Regarding the mortgage value, the Bank of Spain considers that it is influenced by the dynamics of prices in the medium term and that “at the moment it is difficult to make a reliable estimate of the time and the way in which prices will evolve”.

In any case, the institution anticipates that in the second part of this year there will be macroeconomic projections and data from the real estate market that will allow companies to estimate negative trends in their future evolution, in order to introduce adjustments in market value.

Pending its duration, the pandemic is already passing an onerous bill to the housing market in all geographic areas. According to the Real Estate Heart Rate Monitor prepared by the Real Estate Business School, the price of housing will plummet throughout Spain in 2020 at a range between 20% in Cantabria and Galicia and 44% in Andalusia.

As for merchanting, at the moment only the operations that were in the processing phase are being closed. With Spaniards confined without being able to visit homes, real estate agencies closed, and notaries and appraisal companies working at half gas, activity has been reduced to a minimum.

The Covid-19 will represent a before and after in the Spanish real estate market, which was advancing at cruising speed before the pandemic explosion. Although it was already showing some signs of fatigue in the geographical areas where transactions and prices had risen the most in the last year of the bullish cycle, the health of the sector was good.

The coronavirus has blown up the experts’ forecasts for 2020, which included stabilization of sales and growth of around 3% in prices.

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