Ever Wonder What’s Been Going On in the Past Quarter in the Commercial Appraisal World?
Data from more than 1,200 U.S. banks and credit unions reflect key industry benchmarks in lender-driven commercial property appraisal activity.
As part of an ongoing effort to help commercial real estate industry professionals work more efficiently, LightBox Collateral 360 launched an integration with Baker Hill’s NextGen loan origination platform to streamline the lending process. In addition to such partnerships, we regularly publish content about commercial real estate to provide the industry with our viewpoints on the market. Our first quarter 2023 CRE Appraisal Market Snapshot reports on trends such as a modest first quarter turnaround in volume and downward pressure on appraisal fees.
- With a recent four percent increase, appraisal award volumes are starting to recover despite a 43 percent year-over-year decline in project volumes.
- Commercial real estate appraisal pricing has remained relatively unchanged despite recovering volumes.
- Appraisers are completing their work about five days faster than a year ago despite a five percent increase in the number of awards.
According to the report, “In 2022, the commercial real estate market was hit with seven rapid interest rate hikes, and lenders responded by curtailing originations as fears of a recession intensified. Appraisal award volume in LightBox’s lender platforms began a steady decline in April, ending the year at uncharacteristically low levels.”
Requests for proposals (RFPs) from lenders for appraisal projects changed course after a steady downward trajectory that began in April 2022. Despite a modest two percent increase over the previous quarter, the number of RFPs in the first quarter was down from one year ago, while RFP awards fell by 44 percent in that period year-over-year. The trend reflects the lending sector’s reaction to higher costs of capital and general unease about the market, and to the rapid onset of interest rate hikes in 2022 after a robust first quarter. As appraisal opportunities increased in the first quarter of this year for the first time since last March, the response rate continued the relatively steady climb of the previous quarters.
LightBox data on RFP awards and turnaround times indicate that even as volume began to increase in the first quarter—reaching levels seen last October and November—the average number of days needed to complete the work continued to decline. Efficiency is paramount as pressures mount to close loans quickly ahead of additional interest rate hikes or the onset of recessionary conditions. Despite a five percent increase in awards for the first quarter of 2023 versus the prior quarter, the average number of days to complete appraisals fell from 14.9 to 13.5. At lower volumes, firms may find it easier to finish projects quickly, compared to the first quarter of 2022, when they had fuller pipelines and the average turnaround was 18.4 days. Once market uncertainty dissipates and appraisal project volume increases, turnaround times may surpass today’s competitive average.
First quarter appraisal volume may be affected by turmoil in the lending industry in the wake of the early March failures of Silicon Valley Bank and Signature Bank, and the renewed focus on commercial real estate risk exposure that followed. Tighter underwriting by lenders that began in late 2022 intensified during the past quarter. Investors feel challenged to pencil deals carefully, in the wake of two more interest rates hikes (albeit more moderate ones) and the need to readjust to higher costs of capital and lower property prices in some asset classes and metros. In February, the Mortgage Bankers Association reduced its original 2023 lending forecast by 10 percent, projecting that 2023 volume will be down by 15 percent, to $684 billion this year. If this forecast plays out, commercial real estate will experience some relief in the form of a rebound of 32 percent in 2024.
Read the full report here
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Posted on Thursday, June 1, 2023 at 8:00 AM
by LightBox | Collateral360®