Nine Things You Should Know About Commercial Appraisals
A Certified Appraisal is the most credible and efficient option when somebody needs a truly unbiased and accurate value estimate. Until a property actually sells (buyer and seller “transact”) value is just an opinion. Even an actual sale price lies within a range of reasonable numbers – you know this if you are in business or have ever bargained for anything. The value of real property and time required to sell are not set in stone. A Certified Appraisal is confidential, objective, and based on a very strict set of rules – many by effect of law.
1. The inspection is just a small part of an appraisal assignment.
An appraisal requires from eight to sixty hours. An appraiser may spend less than twenty minutes inspecting a small property, but at SFREAppraisal we often spend four hours or more before the inspection researching public property records, zoning, demographics, and comparables (which can include land sales, improved sales, listings, rentals, expenses and capitalization or discount rates depending on the property). After inspecting your property we often do more research on it, research comparable sales and listings, and then begin an overall analysis process that precedes the actual valuation.
The valuation phase, which can take anywhere from six to sixty hours, applies our preliminary research and market knowledge to your property. All the while, we continue to build a report summarizing our findings. The inspection is just part of the appraisal process that may take several days or even weeks.
2. By law, appraisers adhere to a strict code of ethics.
If an appraiser refuses to do something that you ask for, it is probably because of legal and ethical obligations. To maintain Florida Certification appraisers must follow the Uniform Standards of Professional Appraisal Practice (USPAP, a binder nearly two inches thick) which, among other things, requires us to provide credible, unbiased opinions and maintain public confidence. We also have legal Federal standards and, for those of us who have worked toward the MAI designation, are accountable to the Appraisal Institute.
3. By law, there are only two appraisal report options.
- Restricted Appraisal Report – less expensive but highly summarized, and only for use by a single knowledgeable client and user.
- Appraisal Report – in-depth information that may be used by a wider audience.
Our legal obligation is to provide an unbiased, credible report. Our appraisals are always in writing.
4. Either report option will conclude to the same value.
A “Restricted Appraisal Report” and an “Appraisal Report” will always convey the same conclusions, but not the same detail of observations and analysis in the report. The amount of work involved in reaching conclusions does not depend on the type of appraisal – we always do all that is required.
5. The least qualified appraiser signing a report is frequently the writer and value estimator.
Here at SFREAppraisal we do not use junior-appraisers. You will get the owner of the company every time. An appraisal report’s credibility can often be linked to the least-competent signer, so make sure there are no second-signers on your appraisal because they will frequently be the researcher, writer and analyst that estimates your value. Too many appraisal firms use experienced appraisers as proofreaders.
6. Our “client” is the one who ordered the appraisal.
If you ordered the appraisal, nobody will have access to anything without your authorization. You will probably not be the client if your appraisal is ordered by a lender for financing, and you may not be entitled to the final report unless they say so. By law, appraiser cannot release an appraisal report or other confidential information without approval from their client.
7. Identify the intended users.
Make sure the appraiser knows who you want to be allowed to rely on the report – is it for the IRS and other governmental agencies for estate planning, or your county Appraiser for a tax appeal? If you they will probably not accept your appraisal unless they are identified. Also, appraisers limit their liability by defining Intended User(s), with some requiring a higher level of due diligence (at a higher cost to the appraiser).
8. Don’t try to trick the appraiser.
You shouldn’t hide a blemish or embellish an amenity. Appraisers are professional skeptics. They will make reasonable attempts to verify everything they consider in the appraisal. Appraisers are always thinking about how they will defend their opinions if challenged. The appraiser’s observations and assumptions, including your representations, are contained in the report so inconsistencies are usually easy to spot anyway.
9. What should you pay for a Certified Appraisal?
Expect credible appraisers to quote fees that will ultimately average billings somewhere between $1,200 and $2,500 per day depending on overhead, efficiency, assignment-load and the value they provide to their clients. It is impossible to determine the accuracy of an appraisal based on cost, however. Buyer beware – it is impossible for a lay person to know whether their appraisal report is credible or accurate just based on cost alone. Appraisal is a personal professional service, and most consumers of appraisal services prefer to “know their appraiser” than contract on price alone.
- Simple appraisals may require a day or less, while simple improved properties may require anywhere between two to three days and complex properties weeks or more.
- Common properties require less time while atypical properties require more.
- Rush appraisals (one week) are more costly than standard (two to three weeks) because they disrupt the appraiser’s production pipeline and may require turning away other assignments. Appraisers work on several assignments at a time.
- A “Restricted Appraisal Report” requires about 25% to 50% less report-writing than an “Appraisal Report” so it will be less costly.
Why the high cost? A credible commercial real estate appraisal firm maintains expensive information sources, modern technology, and has office overhead. Additionally, Florida state certification and designations require a great deal of continuing education and other obligations.
If you are going to apply for a loan…
Federal law makes it impossible for most lenders to use an appraisal that was ordered directly. If you think you might use your appraisal for financing, ask your bank to order it on your behalf.
If time is of the essence…
Be prepared to make an appointment and respond to the appraiser’s initial information request immediately. Delayed response to the information request often has a compounded impact on the delivery time of an appraisal – much more than the delay itself. This is usually only a factor when dealing with income producing property (rent rolls, financial history) or proposed development (timeline, costs, etc.).
When in a dispute…
I am nobody’s advocate. If you found this website because you are reading one of my reports, my report represents my unbiased opinion without influence from my client. I am prepared to defend it. You do not need to go to the expense of engaging another appraiser.
Your first priority should be to obtain your opponent’s reports. You may agree with them. Even if not, it will be very useful to me to review their reports for mistakes or evidence of advocacy. A review is much less costly than an appraisal report, and tells you what your opponent is thinking.
Never share my appraisal report with anyone else – including another attorney for any reason – until compelled to do so by the court or your own attorney’s advice (and question it first). Be silent – don’t give your power away.