The search for a Long Term/ Sustainable Real Estate Appraisal/Valuation for Secured Lending

In the aftermath of the global financial crisis, the role of real estate appraisals/valuations within secured lending has been increasingly scrutinised. Some countries were very slow to realise that processes within the real estate industry may have some part to play in trying to ensure that the GFC was not replicated in the future. For example, in the UK, real estate was quickly implicated as a major part of the problem but slow to be included within suggested solutions (Vickers, UK Independent Commission on Banking Chair, 2011). Market valuations have underpinned loan decisions in many countries and only in a few countries such as Germany has there been any substantial attempt to depart from this tried and trusted concept and basis of valuation. However, recent developments across Europe have included discussions around the replacement or supplementation of MV with a "long term" or "sustainable" value. Recently, the European Banking Authority was charged with developing a long term value methodology although this worked is currently stalled. TeGOVA and RICS are active in these discussions. The German based Mortgage Lending Value is an established valuation method but it has not found universal favour across Europe, including within RICS and TeGOVA. This paper will examine alternative concepts, bases and methods of long term or sustainable value. It will examine the bank lending valuation "problem" and discuss what banks should really be requiring of valuations. It will question whether a long term or sustainable concept can actually exist and whether the real requirement is for a more rational economic fair value model that acts counter cyclically; restricting lending in boom markets and encouraging it in fallen or underpriced markets. It will examine work undertaken in the UK to see if these models are viable and at what level can they be operated; for example national or local market segments or at the individual property level.