June 20, 2021

What Challenges The Business Property Tax of California is Facing Now?

The appraised market value is now also the starting point for capital requirements. Despite the COVID-19 related uncertainties in the valuation of real estate, the appraised market value is the starting point for determining the capital requirements. However, due to the material changes in market conditions, more frequent monitoring of the value is appropriate. When it comes to the business property tax California there has been a series of problems and issues arising lately.

COVID-19 Can Hinder the Execution of Valuations and Causes Uncertainties in the Valuation

For example, travel and contact restrictions can make an on-site inspection difficult. Also, the number of transactions involving similar objects and reflecting the changed circumstances after the COVID-19 outbreak is very limited. Finally, the outbreak makes it uncertain how revenues from commercial real estate will develop. These factors cause real estate valuations to be more uncertain than before the crisis.

In accordance with the market value, determined by an independent, qualified valuer is the basis for determining capital requirements. This applies to loans secured by mortgages on commercial or residential real estate. Despite the current uncertainties, no haircut needs to be applied to the market value. This applies to banks that apply either the standard or the internal models approach.

Valuers Must Perform the Valuation In Accordance With the Relevant Valuation Standards

Several Guidelines refer to international and European standards for the valuation that appraisers must apply. For example, the Guidelines on the management of non-performing and forborne exposures and the draft Guidelines on loan origination and monitoring refer to the standards of the International Valuation Standards Committee and The Group of Valuers’ Association. These professional associations have also provided guidance on how to apply the standards in times of a pandemic.

With the strongly changing market conditions due to COVID-19, a more frequent check of the valuation of real estate is appropriate. The current uncertain market conditions may be a reason that banks monitor their collateral more frequently and have it reassessed if necessary. In situations where the real estate market is subject to significant changes, banks are obliged to monitor their real estate portfolios more frequently and to have it reassessed in the event of material discrepancies. Accordingly the business property tax California is getting limited.

Now that the corona crisis is unfolding, our country is also increasingly noticing the consequences of the measures taken to slow down the virus. We will notify you of additional information. What do you, as a Registered Appraiser, have to take into account in your professional practice?

Follow the regulations

You must comply with the government regulations and the guidelines, which can change daily. These were tightened up again on March. Of great importance here are measures related to limiting the spread, such as social distancing and personal hygiene. These can affect your valuation activities.

Internal inspections

Part of the valuation is an inspection of the property. You may want to refrain from doing so to reduce the chances of becoming infected with the virus. The owner or tenant of the property may also find it undesirable for an appraiser to carry out an inspection. In both cases, the valuer must explicitly agree in writing with the client that an internal inspection will not be carried out at this time, due to the special situation resulting from the COVID-19 pandemic. The parties must explicitly include this deviation from the regular working method in the assignment letter. In that case, the valuation uncertainty will be greater than after the internal inspection. It can also be agreed that the inspection will be carried out at a later time, which may have consequences for the valuation outcome. This must also be recorded in writing. In fact, in this case, the valuation will not be finalized until later.

Leave a Reply

Your email address will not be published. Required fields are marked *