Variable valuation: Is your property worth less than you think?

On the surface, a property’s value seems straightforward. It's determined by square footage, location, recent sales in the area, and local economic conditions. Lenders, investors, and homeowners have relied on these traditional attributes to determine market value for decades. But this valuation model can be fundamentally flawed if buyer or sellers are not well informed. It's like judging a house by its curb appeal without looking at the foundation.

A powerful and rapidly emerging variable is coming to light, silently eroding asset values: physical environmental risk. Without the right information, this factor can easily be overlooked which can threaten the investments of individual families and the integrity of entire portfolios.

This isn't a theoretical problem; it’s a tangible financial reality. The question is no longer if environmental risk will affect your assets, rather which risk and by how much. And whether you have the intelligence to see the full picture.

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Why traditional valuation fails

For decades, environmental risk management has been a largely backward-looking discipline. It relied heavily on historical data and broad-stroke models, such as FEMA flood maps, which are valuable but increasingly insufficient in our rapidly changing world. This traditional approach has three critical limitations:

• Lagging indicators: Historical data tells us what has happened, not what will happen. In an era where "100-year floods" occur every five years and wildfires are no longer confined to specific regions; past performance is not a reliable predictor of future risk. This is a point the U.S. government has publicly acknowledged, declaring environmental change an “emerging and increasing threat to the global financial system and economy.”
• Interdependent and compounding risks: Traditional models often treat natural hazards as isolated events. In reality, they are interconnected in a dangerous cycle. The recent fires in Los Angeles, for example, followed two years of wet winters that encouraged the vegetation growth that became wildfire fuel. Now, the burned areas lack the vegetation to absorb water, making them more vulnerable to flood; a deadly cycle that is repeating itself across California.
• Data gaps: Traditional methods struggle to process vast amounts of data from disparate sources, leaving crucial insights fragmented. The Federal Reserve Bank recently questioned six of the top U.S. banks about their preparedness for physical environmental risk, highlighting existing gaps in banks’ ability to quantify real estate exposure and insurance risk management information.

These limitations highlight a fundamental gap: the need for a system that can not only understand the present but also predict the future with greater precision and integrate diverse data sources into a cohesive, actionable framework. This is where AI-powered analytics step in.

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Uncovering the hidden variable

At Cotality, we believe that you can manage what you measure. And measurement must happen with accuracy to understand the value of a property portfolio from all viewpoints. Our mission is to make property risk visible, quantifiable, and manageable. We do this with Artificial Intelligence (AI), which allows us to deliver "Intelligence beyond bounds," seeing patterns invisible to the human eye, predicting future scenarios, and integrating complex data points into actionable insights, such as:

• The unprecedented threat of wildfire and flood: The interdependence of risks in California is a clear illustration of the hidden variable. This cycle has left the state's major metropolitan areas facing significant, growing flood risk. In Los Angeles, 762,000 homes are impacted by flood risk, in San Diego it’s 231,000, and in San Francisco it's 65,000. Between 2030 and 2050, the flood risk scores for these homes will worsen significantly.
• Escalating costs: Escalating escrow costs are fundamentally reshaping the financial reality of homeownership, undermining the long-held promise of stability provided by a fixed-rate mortgage. Driven by surging property taxes and insurance premiums, these costs now rival principal and interest payments for a growing number of homeowners. The unpredictable financial burden makes homeownership a risk rather than a reliable wealth-building asset, directly contributing to market devaluation in many affected areas.
• The WUI and the tripling of fire size: Traditional risk models often fail to account for the unique vulnerabilities of the Wildland-Urban Interface (WUI), which is home to approximately 45 million U.S. residences and is the source of most wildfire ignitions. The average fire size has tripled over the past 30 years, and our analysis shows a similar trend in risk exposure. In the Los Angeles-Long Beach-Anaheim metro area, the Reconstruction Cost Value (RCV) for high-risk homes rose from $71 billion in 2019 to $143 billion in 2024. This trend is not unique to California, with major fires in Colorado and the million-acre Smokehouse Creek Fire in Texas demonstrating the growing scale of the threat.
• Unpredictable events don't respect outdated maps: Central Texas' flash floods in July 2025, a 1,000-year rainfall event, caused an estimated $1.1 billion in damage, devastating local communities. A key takeaway from this event is that properties located outside the 500-year floodplain suffered heavy losses, highlighting that flood zone evaluation requirements set by FEMA are just a starting point as floods don’t respect arbitrary boundaries. This event underscores the need for more advanced, address-level insights to predict risks in areas previously considered "safe." While it is not a requirement, looking outside federally mandated boundaries can help protect the long-term security of an asset.

Our platform goes beyond a simple, high-level overview. It provides hyper-local, address-level insights that account for microclimates, local topography, building characteristics, and more, revealing the true physical risk profile of a property. This is where we uncover the hidden variable and how we give our clients the power to see around every corner.

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Actionable intelligence for every stakeholder

In a world where environmental risk is often a hidden or misunderstood variable, the ability to see around these corners is no longer a luxury; it’s a necessity. Cotality's property data and insights empower stakeholders to do just that, providing them with a clear view of potential threats and opportunities.

• ‍For federal and state governments: The U.S. government has previously recognized the urgency of environmental hazard risk, with the White House inviting experts like Cotality's own Dr. Howard Botts and Pete Carroll to assist with macroeconomic forecasting. Dr. Botts noted that Cotality was the only climate risk modeling company invited, which highlights our unique ability to provide the consistent, granular data and advanced models needed to address this large-scale threat. Our experts are uniquely positioned to help the government apply our data effectively to manage the growing risk.‍
• For lenders and financial institutions: Our Composite Risk Score (CRS), which combines over 20 detailed risk measures into a single score, allows lenders to instantly and precisely assess a property’s resilience as part of underwriting a loan. By using this score, they can gain deeper insight into a property’s long-term viability and accurately factor in risk, ensuring the health of their portfolio. This is the kind of forward-looking data the Federal Reserve is asking for.‍
• For real estate investors: In a market where the environment is a devaluing threat, data and actionable insights become a competitive advantage. The ability to see beyond the high-level noise and identify a lower risk property in a vulnerable area can unlock a powerful opportunity. Our 30-year projections and Intergovernmental Panel on Climate Change (IPCC)’s climate scenarios empower investors to uncover hidden value and build a portfolio that is both profitable and future-proof.‍
• For corporations and urban planners: Corporations can use our data for smarter site selection and more resilient supply chain management. Our insights help urban planners build stronger, more adaptable communities from the ground up, as seen in the UK's "Parity Project," which aims to retrofit 37 million homes to create a more resilient housing ecosystem. The data provides a shared basis for collaboration, ensuring that the next generation of infrastructure is built on a foundation of foresight.

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The proactive path

The traditional valuation model can be improved. The obscure variable of environmental risk is already influencing markets and eroding asset value. The businesses that will thrive in the coming decade are those that move from a reactive posture to a proactive, data-driven strategy.

The evidence is clear, the environment influences a homes value–and the risk of the environment changing is real. The future belongs to those who embrace the intelligence needed to navigate this new landscape. Cotality provides the tools to do just that. Our AI-powered platform, with its property specific granularity, predictive foresight, and comprehensive data integration, empowers you to see the full risk picture.

By making the hidden visible, we help you protect your bottom line, gain a competitive edge, and ensure your property valuation risk is understood. Watch our on-demand webinar to learn how to turn environmental challenges into opportunities.

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