James Bovell's Issues with Valuations in the Cayman Islands are Out of Touch

James Bovell, co-owner/Broker of Re/Max Cayman Islands writes a regular column on real estate issues in the territory's primary newspaper, the Caymanian Compass.  These articles are usually interesting and thought-provoking, however, the section "The Issues of Valuations" in his article Real Estate Issues of the Day in today's paper struck a nerve with me.  In this section, he goes on a rant about how local valuers (appraisers) are out of touch with reality and behind the times on values.

While I do not personally conduct residential property appraisals, we have someone in our office that does this, and I am well acquainted with the local issues and nuances.

1. Local appraisers are not given comparable information by the agents and rely on inadequate data.  There is no real estate licensing in Cayman and no "Association of Realtors (R)"; however, there is the Cayman Islands Real Estate Brokers Association (CIREBA) who possesses the only Multiple Listing Service (MLS) in the territory.  However, unlike the United States, Canada and other places that we do business (US Virgin Islands for example), appraisers/valuers are not allowed to become affiliate members so that they could have access to the MLS see details about the sales of properties.  Despite repeated requests from me personally as well as others within our local chapter of the RICS, CIREBA refuses to allow local valuers some sort of membership so that we could search and view comparable data in the MLS.   Most recently, I even suggested to them that we could purchase a monthly printout of the sales transactions, without having access to the actual data online, and they still refused.  Without this information, valuers rely on information contained in the local GIS system, which has no significant details on the physical nature of the buildings that have sold.  Rather, CIREBA members have opted to repeatedly critize valuations whenever a deal falls through (or at any real estate conference where they have the opportunity), without recognizing that they continue to hold close to their chest the information that appraisers need to do their jobs properly.  As I said before, this situation is somewhat unique.  All the Associations of Realtors (R) offer appraiser memberships so that they have access to MLS data and are working with the same information the brokers have.  
2. Appraisers play a significant role in the real estate and financial markets by guiding lenders in their decisions on lending, and thereby helping banks stay afloat and continue to lend money.  As we all know from the market crash of 2008 in the USA, overvalued collateral was largely to blame.  Values are cyclical - they go up and they go down.  The 2008 problem happened because, while, appraisals may have been relatively accurate on average at the time they were done, values fell below loan amounts when the market cycle turned; and the valued collateral was worth less than the securitized debt.  And while the markets in the US have largely rebounded since then, there are still a significant number of foreclosures in the Cayman Islands, which appeared to have peaked in 2016 but continue this year.  These foreclosures were largely due to properties that were over valued at the time of purchase (or construction); however, those properties cannot currently be sold for their outstanding loan amounts. If CIREBA were interested in assisting appraisers in their role in maintaining the real estate and financial markets of the Cayman Islands, they would find a way to provide the data (at a price of course) and assist us in our task.
3. It is true that appraisers work primarily with historical data, but with the ability to use subjective reasoning to adjust for changing market conditions.  For example, if valuing a property in a certain neighborhood, an appraiser will look for the most recent closed sales that are in the area and hopefully similar, adjust them for dissimilarities, and reach a value conclusion.  If market conditions are improving in a certain area, appraisers will often adjust the historic sales by the perceived rate of inflation.  Agents and brokers in the Cayman Islands, on the other hand, have no real rules to go by when advising clients, so they "talk up the market" as much as possible, and will often suggest listing a property at a significantly higher value than the last closed sale would indicate.  There is nothing wrong with helping drive the market upward and get the best price for their seller, however, they have the ability to use their own listings, market hype, and subjectivity without necessarily hard data to support their suggested listing prices.
4. James Bovell makes the point that current demand is hot and prices are going upward rapidly in this market.  While the demand for real estate is certainly hot in the core areas of Seven Mile Beach, South Sound and parts of West Bay, values in areas to the east are relatively stagnant with significantly longer marketing times.  Once again, it is in the best interest of realtors and their agents to "talk up the market" in their articles, publications, advertisements and discussions with people.  Another issue that is unique to this market is that within CIREBA (if I understand correctly), agents only have the feduciary responsibility to the seller, even if they were engaged by a prospective buyer to help them get the best value for their money.  So the motivation of the broker/agent is always to achieve the highest price and get the highest commission.
5. Yes there will be times when valuers get it wrong - it happens everywhere.  But there will also be times when a loan falls through because there is clear market evidence to suggest the value is lower than the purchase price; and in these cases, the appraiser's duty to the client is to guide them so that they do not make an unwise lending decision.  This situation can occur because (1) one buyer does not make up an entire market, (2) the buyer is basing their purchase decision on very limited information provided by the agent, which is usually a competitive market analysis limited to listings only, and (3) their agent is trying to get the highest price possible.

James V. Andrews, MAI, CRE, FRICS, ASA/BV is the Senior Managing Director of Integra Realty Resources (IRR) Caribbean.  IRR Caribbean provides real estate and business valuation and consulting services throughout the Caribbean, with offices in the Cayman Islands, U.S. Virgin Islands, Bahamas and Puerto Rico.  He can be reached at [email protected]