Real estate appraisers' view on "First Home" scheme

First Home scheme has raised controversies in the residential industry, from real estate agents to home appraisers as homeowners lifted asking prices, speculating a growing demand. However, appraisers may weigh in the information to estimate a value differently.
ANEVAR: The scheme has no technical ground

The much-expected First Home scheme was considered to be the new engine that could reignite the home demand in the market, according to Adrian Vascu, chairman of the National Association of Romanian Home Appraisers (ANEVAR). Many homeowners speculated and inflated home prices, but it wasn’t a general trend, because the program stalled.

“First Home scheme was a useful incentive; it has helped the marked emerge from a stand-by mode, at least at a psychological level. But the program was not technically prepared and got stuck. After an intense promotion and after being well received by people, it failed, the biggest problem being that all procedures last too long”, Adrian Vascu (photo) told Wall-Street.

Chairman of ANEVAR said that, due to the lengthy process of buying a home under the scheme, vendors tried to change prices so much and buyers were constrained. “People found the homes they wanted, gave the down payment for it, but applications are still pending for approval by the fund, and many lost the money they had paid in advance or the home they applied for”, said Vascu.

The Small Firms Loan Guarantee Fund (FNGCIMM) has recently recommended to potential buyers to try to set a longer term in the pre-contract with the vendors to avoid losing the down payment or the respective home. But real estate players say the solution may not be agreed by vendors.

“It all depends on how much the house costs and for how long the house was on sale. Nobody knows exactly why it takes so long for the Fund to process the application, or what is its internal procedure”, Vascu added.

Darian: The scheme targets a too narrow category of homebuyers

Darian company that provides real estate appraisal services, say the First Home program will have a minor economic impact, largely due to its size and too narrow category of eligible homebuyers.

Given the type of the assignment, home appraisers will have to adopt a three-tier valuation methodology, says Adrian Crivii, chief executive of Darian on his personal blog.

To formulate an estimate in case of a developing property by adopting a cost approach, the appraiser will factor in the sharp decline in land values, materials and labor costs. “Another element to be considered is the significant adjustment of developer’s profits”, said Crivii.

In case of an income approach, the home value will be determined by comparing the past rent levels, considering that apart from large metro areas, there is no sustainable long term rent market.

As for the sales comparison approach, Darian representatives say this is the most applicable valuation technique for completed and occupied properties when the market is active. But both the real estate appraiser and financier will have to consider the following:
- the market segment eligible for First Home was slightly influenced by the scheme, bringing a 15% increase in asking prices;

- the location and intrinsic quality of the property can secure it a long-term value, therefore these factors must be thoroughly analyzed;

- even if the loan is back-to-back guaranteed by the state, the banking guarantee with all the risks it brings must not be overlooked.

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