How To Prepare For A Commercial Appraisal

The Appraisal Institute recently issued a press release giving homeowners tips on how to prepare for an appraisal. The article was insightful and addressed a lot of common concerns on behalf of the typical property owner. These included providing relevant information to the appraiser, appraiser independence and whether or not is it acceptable to accompany them during the inspection. After reading, I thought that this would be a good opportunity to cover some similar topics for commercial property owners that are preparing to have an appraisal done.

Prior to the Appraisal

Just like for a residential appraisal, commercial appraisers more than welcome any property specific information that can be provided. Upon engagement for an appraisal, I typically request a number of items upfront such as leases, purchase contracts, financial statements, and rent rolls. It is also helpful to get a list of recent capital expenditures and their cost.  These most often include a new roof, HVAC, and tenant improvements (build out).  New and recent upgrades can often reduce operating costs and lower the buildings “effective age”, so be sure to point these out to the appraiser.

Commercial Property Inspection

Much to the dismay of the typical commercial property owner, the actual on-site inspection can be relatively brief.  An appraiser should certainly not rush through the inspection, but the actual site visit can be less than five percent of the total amount of time spent on the assignment.  Commercial appraisers often spend far more time analyzing rent rolls, cash flow statements, and projecting future income. Just as much time is spent performing a market analysis, along with confirming comparable sales and rental data. A typical narrative commercial appraisal report is often more than one hundred pages, thus we also spend a considerable amount of time writing the actual report itself.

Final Value and Assignment Results

When an appraisal is finished, I often get a request from the property owner to be told the value, or even to get a copy of the appraisal report itself.  Depending on the arrangement, particularly in the case of mortgage financing, it is often inappropriate for me to disclose the final results.  The property owner may in-fact be paying for the appraisal, but the most common form of an appraisal engagement contract is directly between the lender and the appraiser, not between the property owner and the appraiser.  That being said, only the lender is the client and the “owner” of the appraisal.  The property owner may certainly be entitled to receive a copy, but it is best for them to receive it from the lender, not the appraiser.

One thought on “How To Prepare For A Commercial Appraisal

  1. Wow, I didn’t know that a typical narrative commercial appraisal report is often more than one hundred pages. If I were to own a commercial property, I would want to have an appraiser that that was on top of the job and made sure everything got done properly. Finding a good commercial appraisal services company seems like a good route to take.

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