Commercial Appraisal Facts You Should Know

san diego 5Commercial appraisals are very different from residential appraisals due to the fact they’re much more subjective in nature. In fact, these days business owners have a lot to take in when it comes to the subject of commercial real estate, not to mention trying to understand the appraisal process when the time comes to hire an appraiser to value a piece of commercial real estate.

First and most importantly, all appraisers must follow the Uniform Standards of Professional Appraisal Practice (USPAP), which requires appraisers to provide an “unbiased” opinion of value. Failure to do so may include disciplinary action from the state and possibly the appraiser having their license revoked.

As you get started with the appraisal process an important item to keep in mind is that whoever orders the appraisal is usually the “client,” regardless if you paid for the appraisal or not. If the lender ordered an appraisal for financing, then the lender is the client which means the appraiser cannot release the appraisal to you without consent of the lender. If however, you ordered the appraisal as part of a divorce, estate settlement, tax appeal process, and more, then you are the client of record.

Another item to keep in mind up front is that the actual appraisal inspection is just a very small part of the overall appraisal process. The actual property inspection could take anywhere from 30 minutes to several hours and is usually the easiest portion of the entire appraisal process, but the inspection should not be misunderstood to encompass the entire process as the appraiser is only just getting started at this point. Appraisers additionally research public records, ownership, zoning, demographic data, comparable sales, replacement costs, rental income, and more. Once all the data is collected, the appraiser then analyzes the data as it relates to the value of your property, and constructs a final report on their findings which could take several days to several weeks to complete depending on the complexity of the assignment.

Other important items to keep in mind is to never “misrepresent’ any material facts about the property and don’t withhold any information which may be critical to the appraiser accurately valuing the real estate involved. You should also identify to the appraiser who you want to be able to use the report. These persons will then be identified by the appraiser in the appraisal as authorized parties to use the report.

Finally, it’s critical to inform the appraiser of your interest in the property. For example, if you would like to know the value of a property as if free and clear – such as a commercial building that you would like to move your business into – your interest would be a “fee simple interest.” In other words, you’re simply looking for the value of the building and its property. However, if you’re interested in the property’s value for a landlord when occupied by certain tenants, you would be looking for a “leased fee interest.” Finally, if you would like to know what a lease is worth to a tenant, you would want a “leasehold interest.” This is a common request when looking to buy businesses, as people need to know what the value of the lease is to that business. So once again, be sure to identify which property interest you would like appraised before getting started.

I hope you found this helpful and if you have any additional questions, thoughts, or comments please leave them down below.

IRR specializes in both commercial and residential appraisals for divorce, bankruptcy, estate, date of death, tax appeals, pre-listings, and more throughout the greater San Diego area. For more info contact us at (858) 259-4900, visit our website at IRRSanDiego.com, or email us @ sandiego@irr.com.

 

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