10 Things to Know About Commercial Real Estate Appraisal

1. The Inspection Is Only a Small Part of the Appraisal Process

Depending on the size and complexity of the property to be appraised, it might take less than an hour to several hours to inspect the property. Some clients perceive this as the entire process but the truth is that it is just the beginning. Appraisers research public ownership and zoning records, investigate demographic and lifestyle information, and compile comparable sales, replacement costs, and rentals. They then analyze this information as it relates to the value of the property. Finally, they write a report on their findings. The inspection is just the beginning of an appraisal process that may take several days or even weeks.

2. Don’t Try to Misrepresent the Facts

Appraisers are professional skeptics. They will seek to verify anything that you tell them from other sources. McKnight says he often ask questions that he already knows the answer to just to test the credibility of the people showing him the property. Appraisers are always thinking about how they will defend their opinions if they are ever brought to court, even in assignments in which litigation appears unlikely. If you misrepresent anything, the appraiser will discount the credibility of anything else that you say.

3. Don’t Withhold Information

You will probably be asked if you can provide a property tax bill, a set of drawings of the property, income statements, and other things. You might not know why an appraiser is asking you for something but it is best to provide whatever you can. Appraisers have no interest in unduly expanding their work files but they do need certain information and the more you provide, the more quickly they can complete the assignment. If you subsequently dispute the appraisers value opinions and produce additional information that wasn’t provided from the onset, you have wasted valuable time.

4. Appraisers Must Adhere to a Strict Code of Ethics

Appraisers must follow the Uniform Standards of Professional Appraisal Practice, which, among other things, requires them to provide an unbiased opinion. Failure to follow this might result in disciplinary action from the state, including revocation of an appraiser’s certification. If an appraiser refuses to do something that you ask for, it is probably because of the obligation to adhere to these ethics.

5. The Client Is the Party That Orders the Appraisal

If the appraisal is for financing, the lender is the client. Appraisers are obligated to maintain client confidentiality, so if you are the borrower or any other party, the appraiser cannot release the appraisal report or any other confidential information to you. If you order an appraisal as part of a property tax appeal and are afraid that the appraised value might be higher than the assessed value, you can rest assured that the appraiser won’t release the results to the property tax board without your permission.

6. Identify the Intended Users

Make sure the appraiser knows who you want to use the report. If you are looking to buy a property, that might mean you intend to share the appraisal with the seller, your lender (though they will likely obtain their own appraisal) and possibly your local property tax appeal board. These people or parties will be identified in the appraisal report and are the only ones who are authorized to use the report.

7. There Are Two Types of Reports

A “restricted use report” is the shortest and least expensive type but can only be used by the client and is intended for a single intended user who is familiar with the property.  A “Appraisal Report” much provides at least a summary of relevant factual information of the property together with the analysis required to develop a credible opinion of market value. The cost of the appraisal can vary significantly based on the “Scope of Work”, the complexity of the appraisal assignment and the number of approaches to value developed in association with the appraisal assignment. Generally non-residential appraisals cost more than a typical residential form report. You may request an bid by calling the office at (702) 830-0625 / (435) 673-7720 or fill out an appraisal request form. 

8. The Type of Report Is Separate From the Scope of Work

The amount of work involved in reaching conclusions does not depend on the type of appraisal. Scope of Work must be adequate to develop credible appraisal assignment results. A a minimum the most credible approach to value must be developed. Depending on the nature of the appraisal three approaches to value can be developed, Replacement Cost, Sales Comparison and Income Capitalization Approach. Other considerations for Scope of Work include the inspection level, verification level, specific client appraisal requirements all of which affect the time required to complete the appraisal and will affect the cost to perform the appraisal assignment. 

9. Consider the Date of Valuation

Several years ago, McKnight appraised a nightclub. The weekend after he inspected the property, someone was shot in the club. This introduced stigma that reduced the value of the property. This indicates the importance of establishing the date of valuation. Appraisers can appraise property as of the date of inspection, as of a past date (a “retrospective appraisal”) or as of a future date (a “prospective appraisal”). It is important that you establish the correct date of valuation for your needs. Market value as of the effective date of value is based on market conditions as the existed at that time. 

10. Consider the “Property Interest” Appraised

Last but far from least, it’s important to tell the appraiser what your interest in the property is. For example, if you want to know what a property is worth free and clear – such as a warehouse you want to move your business into – you are interested in what’s called the “fee simple interest.” In other words, you simply want to know the value of the building and its property. On the other hand, if you want to know what a property is worth to a landlord when occupied by a particular tenant or tenants, you want a “leased fee interest.” Finally, if you want to know what a lease is worth to a tenant, you want a “leasehold interest.” This is a common request when people look to buy businesses, as they need to know what the value of the lease is to that business. “Be sure to identify which property interest you want appraised”,