Reese's Observed Conditions

So You Need An Appraisal! | June 11, 2013

As a commercial real estate appraiser, I get a fair number of phone calls and emails every month requesting an appraisal on a commercial property. The first question is usually what will it cost? OK, this is a fair question, but it puts the appraiser into an unfair position. The questions that a credible appraiser should then ask you are specific to your needs. Price does come into play, but you don’t want to pay for a report that in the end will do you no good.

Here are questions that you should be asked, or if you read this blog, you will know what to request!

What is the purpose of the appraisal? Appraisals are required for many different reasons. If for a lender, then the report will help with the underwriting of a mortgage loan – new or refinancing loan. If for litigation, the report will help support the attorney working with you on value as part of the litigation process. If you are buying or selling a property, then the appraisal report can give you a clearer idea of market value on specific property types in a specific market area. There are many other reasons to also need an appraisal. Be specific in stating the purpose.

Who is the intended user of the report? It is important to let the appraiser you are contacting know who will be the client(s); who will be using the appraisal report. Is it for the calling party’s personal use, say in setting a sales price? The intended user may be a lender. Lenders often have specific report guidelines that must be adhered to. Is the intended user a lawyer, or CPA that is working on an estate for tax reporting. Is the intended user the local Tax Assessor for tax appeal? Different intended users trigger different types of appraisals as necessary to be credible for their specific use. Be clear about who will use the appraisal report.

Is the required date of value sometime other than the present? In most instances, the date of value for an appraisal is the date the property is inspected by the appraiser. However, there are other dates that might come into play. If for an estate of a deceased person and tax reporting, it might be the date-of-death (DOD) of that individual. If for tax appeal, it should be as of January 1, of the year of the appeal (at least that is the case in California where I work). If gifting a property, it will be the date of the gift. Other dates may apply so be specific as to the date of value that you need.

What type of appraisal is required? The two main types of appraisals often required are a complete appraisal in a summary narrative format and a restricted use report. The former is a more inclusive report while the latter is a shorter format. For the restricted use report, often, but not always, one method of valuation is used (i.e. the Sales Comparison Approach) and a good amount of the data collected and analyzed is retained in the appraiser’s work file, should it be necessary to expand the format in the future. In the summary narrative format, the appraiser includes research, analysis and background data on the subject and comparables. This format should lead the reader along the valuation process to an understanding of how the property was valued and to the ultimate value conclusion.

Of course there are other formats available. Another format can be more relevant to the property type and need. These other formats can also be discussed with the contacted appraiser at the time of your call.

Timing of need for an appraisal report? This is often a stickler for appraisers. Many end users of appraisal report wait until they are almost in a panic mode before reaching out to order a required appraisal. This situation often results in not being able to find an appraiser willing to commit to a very short turn-around time, or may result in a much higher fee. Appraisers are also business people with a life outside work. They will be the ones giving up the weekend and working often long into the night to meet an expedited demand. As the old saying goes…”time is money”. So if you want an appraisal in a hurry, if it’s possible at all, it will likely cost you more! Plan ahead. It often takes several weeks to collect the data needed for a report due to the fact that those individuals who need to be contacted are not available for one reason or another. Vacations, legal holidays – closed institutions/offices, and other factors can unexpectedly delay the appraisal process and hence the delivery of your report. Then there is also complexity of the valuation itself. More complex property valuations take longer!

Back to the issue of cost.
Armed with all the facts from the above, an appraiser can then estimate the time it will require to complete an assignment. I suspect that most appraisers, me included, look at an hourly rate for services. The more complex the property and the appraisal process, the more hours will be involved. This is why it is so important to provide the appraiser professional with all the facets of need first before requesting the cost.

Caution!
Make sure you contact a competent appraiser to do the work you require. You can check out state licensing and potential complaints on your state’s website under the real estate appraiser licensing section. Get recommendations from other users of appraisals. Talk to brokers, attorneys, CPAs, or other professionals who might be familiar with an appraiser’s competency.

Make sure you get what you are paying for in quality, format, timing and price! As is often true of other purchases…..you get what you pay for….make sure you go into the process informed and informing to receive the best customer service. Your business is always appreciated!

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