Commercial Property Appraisals Are Complicated



Appraisals of commercial real estate are much more complicated than for residential real estate. One of the first things you want to consider is your purpose for the appraisal. If you are considering moving your business into a vacant single use property, you want to know the value of the property and building. This is known as a “fee simple interest” appraisal. A “leased fee interest” appraisal is for landlords wanting to know the value of a property with a specific tenant in place. Another type of appraisal is for a tenant that wants to know the value of the lease – known as a “leasehold interest”. There are still other types of appraisals such as to appeal a property tax appraisal.

New Shopping Center with Office and Retail Space under Construction

New Shopping Center with Office and Retail Space under Construction

The Inspection is a Small Part of the Appraisal Process

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Inspection of a large multi-tenant property is going to take much longer to complete than the inspection of a simpler property like a warehouse. However, both inspections are only the beginning of the appraisal process. Commercial appraisers must also research other information related to the commercial value of the property. This includes zoning records, demographic and lifestyle information, compile comparable sales, replacement costs, and rental rates. The entire process takes days and even weeks to complete.

Commercial appraisers are skeptics by nature. They will ask for a lot of information and then look for other sources to verify the information you give them. They are known to ask questions they already know the answers to just to test a person’s credibility. You want to provide the appraiser with as much information as possible. Both to complete the appraisal as quickly as possible and to assure accuracy.

Although two different appraisers are likely to come to two slightly different valuations, all must follow a high standard of ethics known as the Uniform Standards of Professional Appraisal Practice, which, among other things, requires them to provide an unbiased opinion.

Different Types of Reports

There are three general types of reports. A “restricted use report” can only be used by the client. It is the shortest report and typically the least expensive. A “summary report” can be used by any intended user and is the most requested. It summarizes the data without providing all of the data used in the analysis. A “self-contained report” provides all of the details of the data and analysis. However, it is the most expensive and is seldom requested.

The date of an appraisal is highly relevant. Most appraisals are based on the date of the inspection. However, in the event of a property tax appeal, a “retrospective appraisal” may be needed. If you want to anticipate the future value of the property, you can ask for a “prospective appraisal”.

Because of the many variables that go into a commercial appraisal, it’s important that you make your needs known to the appraiser and how the report will be used. He or she can then guide you to the type of report that you need.

Please leave a comment if this article was helpful or if you have a question.

BioAuthor bio: Brian Kline has been investing in real estate for more than 35 years and writing about real estate investing for nine years. He also draws upon 30 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, a few short miles from a national forest in the Olympic Mountains with the Pacific Ocean a couple of miles in the opposite direction.

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