Scotsman Guide > Commercial > October 2016 > Article

 Enter your e-mail address and password below.

  •  
  •  

Forgot your password? New User? Register Now.
   ARTICLE   |   From Scotsman Guide Commercial Edition   |   October 2016

Harnessing Valuation Data

Technology ensures that commercial property is evaluated accurately

Harnessing Valuation Data

Valuation technology brings together an unprecedented amount of information about commercial property, even real estate with specialized uses, and helps mortgage brokers and their clients confidently answer one of the most basic questions they face: What is that piece of property worth?

Although commercial and multifamily mortgage originations will be down slightly in 2016 from the highs of previous years, according to projections from the Mortgage Bankers Association (MBA), the industry is having another solid year overall. The Federal Reserve revealed in a recent Beige Book report that economic and real estate activity expanded between mid-May and late June of this year.

Strong prices from increased demand for commercial properties play a role in contributing to this healthy market. And in the wake of Britain’s Brexit vote this past June to leave the European Union, the commercial-property industry can likely expect more foreign investment to move toward the United States, which will only further strengthen prices in the market.

With a healthy outlook and increased activity, commercial-property brokers and lenders are under increasing pressure to make sure their technology is sufficient to support their business in order to remain competitive. Valuation technology is the quiet force behind the lending process, offering a full range of appraisal/evaluation order-fulfillment transactions, including order placement, status updates and delivery of appraisals — along with the raw valuation data.

For a variety of reasons, it is often harder to determine the price of commercial property than it is residential property. Valuation technology, as a result, is very useful in determining what a commercial property is worth, but it is essential that the technology be used correctly, and that brokers, investors and lenders understand the information that the technology provides.

Fast analysis

When put to its best use, valuation technology is capable of analyzing large quantities of information quickly and, among other things, speeding up the valuation process — giving brokers and clients sound information about the various classes of commercial real estate and assuring that compliance efforts are consistent and accurate. The large number of individual classes of commercial property, including multifamily, hospitality, industrial and retail, is a main factor that differentiates it from residential property and can complicate valuation efforts.

Commercial lending is multifaceted, and there are a number of moving parts that go along with any transaction. Valuation technology creates the ability to generate property information that is both repeatable and accurate in an otherwise unwieldy process. This is especially valuable because commercial lenders work with several field agents and/or appraisers who assist in fulfilling the orders for various property types. Valuation technology enables lenders to increase efficiency and effectiveness when monitoring and tracking these various appraisal assignments. Without automated technology, the quality of the reports being delivered to lenders would vary widely, which ultimately leads to unhappy clients.

The effective gathering and analysis of valuation data also supports quality control by streamlining the review process and ensuring specific guidelines are met and thoroughly addressed within the report. For both borrowers and lenders, for example, the final decision on whether a deal is worthwhile is based on the adjusted price per square foot of a property compared to comparable properties in similar commercial categories. When selecting properties for comparison, automated technology will flag and reject any outliers that are not within the target property’s size range.

It is vital that those involved in the mortgage process perform thorough
due diligence and also partner with the best technology providers.

Although price determinations are harder to make on the commercial side than with residential properties, there is a great deal of data available on most commercial properties. Valuation technology can acquire and verify that information quickly and classify it in, potentially, hundreds of data fields.

Solid comparisons

Technology significantly reduces the possibility of a variety of errors that can distort the evaluation of a property’s value. Technology can, for instance, flag any discrepancies within an evaluation report — such as cases where the gross-income assessment does not match up with the rental rate provided in a report on a given property. When valuation technology is used effectively, it identifies discrepancies in property reports, notifies field agents and appraisers of inconsistencies they need to address and, ultimately, shortens the property-evaluation, underwriting and loan-approval process.

For commercial real estate, the selection of comparable properties is one of the most difficult components of the valuation process. In highly specialized property types, especially, valuation technology is helpful in searching over a wide area for similar properties that can be used for value comparisons.

Technology allows brokers and investors to gather and store a tremendous amount of information on commercial properties. It allows comparisons among long lists of properties within a database to ensure the field agents and/or appraisers have ample comparables to review while valuing properties as opposed to relying solely on local multiple listing services (MLS). Again, the information provided by technology is particularly useful in commercial-property evaluations, where traditional MLS information is often lacking.

Valuation companies have strong relationships with data providers and agents who gather information on thousands of properties. They also have extensive collections of aerial property photos to give evaluators a feel for properties and allow for more effective comparisons between similar pieces of real estate.

Valuation technology also is capable of assigning the most qualified and knowledgeable field agent or appraiser to a property, based on that professional’s experience working with that specific property type. The technology also will assign the closest qualified and available professional, a factor that’s particularly valuable in remote rural areas.

Compliance assistance

Another common challenge felt by most commercial brokers and lenders today is the increasing costs and intricacies associated with regulatory compliance. The Dodd-Frank Wall Street Reform and Consumer Protection Act and the Basel III bank-capital rules are just two of the many regulations that add time and complexity to the process. Banks are exposed to higher risks than ever before, and technology alleviates the challenges through seamless connectivity with data providers and built-in processes within the valuation order-management platform.

Expert partners can be very useful to investors and brokers, especially those without a great deal of technological background, and it is important to know what to look for when seeking technological advice. Commercial-property lenders and brokers should ensure their vendor partners meet current auditing-standard requirements and have the financial capacity to employ a full-time compliance officer entirely dedicated to the day-to-day monitoring and interpreting of the latest legislation on the local, state and national levels. In addition, commercial lenders should ensure their valuation technology is based on Mortgage Industry Standards Maintenance Organization (MISMO) data standards so that the data can be more easily shared across all systems, which speeds the valuation process and ensures full compliance.

MISMO, a nonprofit subsidiary of the MBA, develops technology standards for both commercial and residential transactions. Its consistent approach to information gathering and dissemination has streamlined the use of data contained in commercial-property valuation reports.

This is particularly beneficial to lenders in the event of an audit, and the lender needs fast access to loan-level data in a standardized format. Today’s audits are deeper than ever before. Auditors are no longer just auditing summary-level data; they are auditing loan-level data, including the valuation itself. Valuation technology houses that data and automatically directs it back to the commercial loan origination system. Commercial borrowers and lenders that do not have the bandwidth to be tech savvy should recognize that partnering with a third-party one-stop shop for their valuation needs is a wise decision in today’s demanding and competitive environment.

•  •  • 

It is vital that those involved in the mortgage process perform thorough due diligence and also partner with the best technology providers, such as vendors with proven track records of financial stability, well-crafted compliance/privacy policies, good audit results and solid references. By aligning valuation technology with business priorities, commercial lenders and brokers can expect an enhanced customer experience, improved productivity, more efficient growth and improved risk management.


 
Bubble 0 Comments

By submitting this comment, you agree to comply with our Terms of Use.



The text exceeds the maximum number of characters allowed.


Are you sure you want to permanently delete this blog comment? This action cannot be reversed.



You must enable your community profile to use this feature.

Cancel Enable profile

You have flagged this post for inappropriate content.

Please explain below. Thank you.

Cancel Submit


Fins A Lender Post a Loan
Residential Find a Lender Commercial Find a Lender
Scotsman Guide Digital Magazine
 
 

Related Articles


 
 

 
 

© 2017 Scotsman Guide Media. All Rights Reserved.  Terms of Use  |  Privacy Policy