Are Mortgage Appraisals Controlled by a Select Few?
The real estate appraisal market in Spain continues to expand, with mortgage valuations rising significantly. Between January and September 2024, the number of appraisals increased by 16%, totaling over 338,000, while the appraised values surged by 19%, according to the Spanish Association of Value Analysis (AEV).
The 32 appraisal companies accredited by the Bank of Spain provide evaluations of properties to ensure the approval of mortgage loans. These valuations are based on various technical criteria, such as location, construction quality, size, age, and condition of the property. Miguel Ángel Castillo, the president of AEV, emphasizes that Spain's appraisal service model is among the most advanced in Europe, designed to support a robust mortgage market through transparency, independence, and rigorous valuation processes.
However, some professionals argue that this system has disproportionately benefited appraisal companies, which, together with financial institutions, control critical information regarding property valuations. This has led to a situation where the preparation of appraisal reports for mortgage guarantees is limited to a select group of professionals.
Alberto Cabrera, a technical architect and partner at Valtecsa, a valuation firm specializing in the hotel and logistics sectors, points out that independent appraisers cannot perform property valuations for mortgage guarantees, as this task is restricted to technicians employed by appraisal companies. He highlights a disparity in the number of appraisers, noting that while Germany has 4,000 appraisers for its 84 million residents, Spain, with a population of 48 million, has only 32 appraisers linked to appraisal companies employing around 3,000 technicians.
Onelia Nóbrega, a member of the Executive Commission of the General Council of Technical Architecture of Spain (CGATE), states that the current system does not promote competition in mortgage appraisal services, adversely affecting consumers. This has been the case for more than three decades, she adds.
In contrast, Castillo argues that the Spanish mortgage title market is significant within Europe, valued at over EUR250 billion. He believes that appraisal companies, through their oversight of mortgage valuations, contribute specialized knowledge of the real estate market, ensuring objectivity and independence in the evaluations conducted by appraisers.
Spain is unique within the European Union for not having implemented the role of accredited valuers, as mandated by the 2019 Credit Contracts Law. This law required the Spanish government to develop this role within six months. Alfredo Sanz, president of CGATE, asserts that the Spanish market must align with EU standards to regain credibility among citizens and the real estate sector. He calls for the establishment of accredited valuers and equitable opportunities for all professionals in the field, advocating for free competition.
Pedro Cantó, president of the Spanish Association of Real Estate and Urban Valuation (AEVIU), echoes this sentiment, noting the peculiar situation in Spain where access to mortgage appraisal services is restricted in a free market framework.
Meanwhile, Castillo maintains that the market for appraisal companies is open and competitive, with numerous providers available and no barriers to forming new appraisal firms, provided they meet the established accreditation requirements.
Three organizations--the CGATE, the AEVIU, and the Superior Council of Architects--are advocating for the development of regulations governing the accredited valuer profession.
Regarding fees, appraisers typically receive a percentage of the fee charged by the appraisal company to the client. These fees are determined independently by each company while adhering to competition laws. However, AEVIU representatives observe that lower fees are increasingly common, contributing to a trend where newcomers to the profession tend to have limited experience and learn through trial and error.
Cabrera provides specific figures, indicating that appraising a property valued at EUR150,000 costs between EUR300 and EUR330. When managed through a financial institution via an appraisal company, these companies retain about 30% of the commission. Consequently, the appraisers, who conduct the majority of the work, typically receive around EUR81 from the total fee.
The value of properties is determined by supply and demand dynamics, with appraisers gathering market data to reflect the current real estate situation in various locations. Elena Guijarro, the second vice president of the Superior Council of Architects of Spain (CSCAE), emphasizes the importance of accurately portraying the conditions of each case in appraisal reports. She asserts that the transparency of the real estate market in terms of appraisals should be upheld by the Bank of Spain through the establishment of conditions that promote professionalism among appraisers, regardless of their affiliation with appraisal companies or independent status.
