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A commercial real estate appraisal can be complicated–from knowing what to ask for as well as what to provide to the appraiser–here's what you need to know.

 

Small business owners have a lot to digest when it comes to the subject of commercial real estate—especially these days. That goes double for the notion of obtaining an appraisal on a piece of commercial real estate, a process that can differ quite a bit from appraisals done for residential properties. "Commercial is very different from residential in the fact that appraisals are much more subjective in nature," says Jamice Welbon, founder and president of Advanced Property Appraisers, an appraisal company in the San Francisco Bay Area. "Much of the value derived from a commercial building is based on the rental rates received relative to the expenses paid out. The underlying asset is important, but not even close to the same way that a residential properties value assets."

In other words, if you're looking to get an appraisal done on a piece of commercial property—perhaps because you want to buy or sell it or even because you want to establish a value of a lease or lodge a property tax appeal—there could be a bit of a learning curve in knowing what you're about to embark on.

This is a list of the top 10 things Jamice Welbon says you need to know about commercial real estate appraisals:

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. Jamice 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 Three Types of Preports
A "restricted use report" is the shortest and least expensive type but can only be used by the client. Fees can vary based on the size of the property as well as the scope of the appraisal, but a good starting point for a restricted report might be $1800 to $2,500. A "summary report" summarizes the data and analysis and can be used by any intended user and can cost upwards of $3,000. A "self-contained report" contains all of the details of the data and analysis, but is rarely requested. If you tell the appraiser how you intend to use the report, he or she can guide you as to what type of report you will need.

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. With a restricted use or summary appraisal, the appraiser will compile large amounts of information that are retained in a work file but are not included in the report. For this reason, the differences in fees between the various types of reports are less than the amount of information contained in the reports might indicate.

9. Consider the Date of Valuation

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.



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," says Jamice.


Posted in:General
Posted by Jamice Welbon on December 7th, 2013 11:35 PMLeave a Comment

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Everybody in the real estate business does not like the HVCC law except for the appraiser management companies and reject appraisers. This rule is bad for homeowner, mortgage brokers, and the good real estate appraisers. This law gives a lot of power to the banks by forcing homeowners to pay higher appraisal fees. Under the old rules the bank had to compete with the mortgage broker for the appraisal fees. But under the HVCC the mortgage broker won’t be able to choose their own appraisers and will be at the mercy of the banks. Under the HVCC rule the banks will choose inexperience appraiser who are will in to work for ½ the appraisal fees. Then banks charge the homeowner $500 for the appraisal and then give the appraiser $245. Experience appraisers do not want to work for reduce pay. If live in Daly City, CA where the rent is expensive $1,500 for a 2 bedroom apartment, gas is expensive, continuing education, appraisal licensing fees, food is expensive, data for gathering information is getting more expensive and my appraisal fees are getting lower. The bank own indirectly a lot of these appraisal management companies. Appraisal management companies have no accountability but yet they can take over 50% of the appraisal fees to me I don’t think that is fair. The AMC are worst that the mortgage brokers because the mortgage broker will only pressure for a value but allow to retain your full fees. The appraisal management companies will pressure the appraiser for value and take over 50% of the appraisal fee and charge the homeowner more for the appraisal. It give the homeowner the impression that the appraiser is charging the homeowner more for the appraiser but the reality is the appraisal management company is charging more for the appraisal. For example Wells Fargo bank which owns Rels. I submitted my application for Rels and got approved by the they wanted me to do a single family house for $245. The normal appraisal in the San Francisco Bay Area is between $350 to $400. The more experience appraisers are refusing to work for $245 an appraisal. To do a good appraisal it may take 8 to 12 hours to complete the appraisal. Mind you they are charging the homeowner $500 for the appraisal. Appraisers are very vital to the whole loan process because we determine the true market value.

Posted in:General
Posted by Jamice Welbon on July 15th, 2009 5:00 PMLeave a Comment

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