5 Things Needed in a Commercial Real Estate Appraisal?
5 Things Needed in a Commercial Real Estate Appraisal?
Answers from an Experienced Real Estate Appraiser:
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I asked a State of California licensed Real Estate Appraiser who is also a designated MAI - Member of the Appraisal Institute with 30+ years of Commercial Appraisal and Industrial Appraisal practice in Los Angeles County what was needed from a client in order to start a Commercial Real Property Appraisal.
He responded that there are 5 basic questions, items and steps required in order to begin analysis and research from the client as a commercial appraisal of Commercial Properties (Retail, Office, Medical, Multi-Family Apartment of 5 units or more and Vacant Land) and Industrial Properties are very different and more involved. There are also different types of properties: Full Owner User, Partial Owner User, Investor or Income Producing Investments.
In comparison, residential real estate appraisal of residential properties (1 to 4 units, including SFR's or single family residence homes) are not as complex, the reason fees are lower due to a much lower level of scope of work and turnaround time (typically 2 to 4 business days).
The client (owner, seller, buyer, landlord, tenant, attorney, cpa or accountant, lender, etc.) with the company or business needs to define which Estate.
1) Estates to appraise: there are several types of estates to appraise; the three main ones are fee simple, entitling an owner to lease or own the property outright; the leased fee estate, which entitles the ownership to collect whatever rent he/she can and also receive the reversionary interest in the property. The last one is the leasehold, which entitles the lessee to the property for as long as they pay rent and occupy the premises. The valuation technique used on all three of these estates can range widely.
2) Items needed from the client:
Things needed to begin an appraisal. Several documents are often needed in order to begin an appraisal job and are often requested by an appraiser, i.e. a property tax bill; property records such as plat plans, building plans, measurements; prior appraisals; prior building measurements; rent rolls; income and expense statements; IRS schedules; lease documents and several other things. It's best to see if you can accumulate these before you even decide to call the appraiser.
3) Appraisal Fees:
Appraisal fees can range widely depending on the types of appraisal report needed. According to the most recent appraisal guidelines, there are only now two types of appraisal reports; The Appraisal Report which is meant for distribution between you and your lender or 3rd party user and the Restricted report. This Restricted Report type is meant only for your use and you would be the only intended user usually. There is no longer any more Self Contained bank type reports and bank reports are largely dictated by the lenders criteria usually submitted by the lender to the panel appraiser.
4) USPAP or Uniform Standards of Appraisal Practice:
USPAP or Uniform Standards of Professional Appraisal Practice are a series of adopted regulations which govern the appraisal practice. These adopted regulations are the rules that appraisers are usually mandated to follow according to most state laws and are prevalent throughout approximately 59 counties and are an amazing set of documents. They are roughly set up to govern the appraisal profession and consist of both Standards of Care and writing procedures.
5) Site Inspections:
These are usually coordinated through the appraiser and are roughly designed to have the appraiser inspect a property. Usually this will normally take approximately 15 minutes and will enable the appraiser to determine many things including what the property is constructed of; if there are any environmental observations that need to be denoted in the report; will show how the property is utilized and or laid out; will allow photos to be taken; will allow the appraiser to see the quality of the building and measure the structure along with many other things.
Conclusion: As seen above, commercial real estate appraisals can initially seem simple and straightforward, however, many times extremely complex with complicated issues. Commercial real estate appraisers need time (typically 2 to 4 weeks) to properly analyze and digest a lot more critical information for accurate Fair Market Rent Lease Rate and Fair Market Value Sale Price reconciliation and conclusion.
Are you a Real Estate Expert that would like to share your knowledge or experience?
Do you have Specific Requests, Questions, Discussion Topics or Needed Insight for any Real Estate Services related items that you would like to see posted?
Potential Suggestions for Feedback, Comments or Subjects for Real Property:
1) Locations in Los Angeles County or locales in 5 other Southern California counties: Ventura, Orange, San Bernardino, Riverside or San Diego?
2) General Property Types: Commercial Real Property or Industrial Real Estate?
3) Specific Property Types: A) Retail B) Industrial C) Office D) Medical / Healthcare E) Multi-Family Apartments or F) Vacant Land?
Possible Topics:
4) Fair Market Rent or Fair Market Value
5) General or Specific Market Trends & Conditions
6) Lease Up Marketing Periods or Sell Out Absorption Periods
7) Vacancy Rates & Collection Loss, Operating Expenses, Capitalization Rates of Return or Investor Required Rates of Return
8) Leasing Activity, Direct or Sublease or Sales Activity, Below or Above Market Level Negative or Positive Factors related to Deferred Maintenance, Distressed Buyer or Seller Sale Motivation such as REO Foreclosure or Short Sale
9) Highest & Best Use(s), Ideal Tenant Mix
10) Net Effective Rent Occupancy Cost Analysis for Major Cost Savings
11) Internal Underwriting, Asset Monitoring & Decision Making, etc.
I can the post for All to Benefit based upon feedback & suggestions for requested Location Advice:
1) Tenants or Occupants that are National Credit, Regional or Local
2) Landlords or Owners that are Full or Partial Owner User Occupiers
3) Buyers 4) Sellers 5) Investors of Income Producing Leased Investments
6) Developers of New Construction Developments or Contractors of Redevelopment or Renovation Projects
8) Private or Hard Money Lenders or Nationwide Banks for Purchase Money Loans or Refinance or 9) Mortgage Brokers
10) What to look for in Real Estate Appraisals
11) What to look for in choosing professional and credible Real Estate Appraisers
12) What to ask when retaining Real Estate Agents or Real Estate Brokers, etc.
Decision Making for Buildings or Projects:
A) Stay at Current Location & Reset New Fair Market Rent: Lease Rates, Concessions and Terms & Renegotiate prior or existing Lease Contracts in place for Upcoming or Soon to Expire Agreements for Options and Renewals to Stay or Renew Lease at existing location
B) Relocate to a Different Location: Move to a Replacement site
C) Expansion into Additional Submarkets: Open Other Multiple Locations for units or office suites