“Why aren’t appraisals coming in at sale prices?” This is a common question asked by commercial real estate colleagues who know my role as a broker and appraiser. Commercial brokers will spend months, even years, listing a property for sale, working the market to find a buyer, negotiating a purchase and finally ensuring a timely closing; only for an appraisal to throw a wrench in the deal at the last hour.
Valuation of commercial real estate is complicated, especially in a changing market. The sale and lease data necessary to complete an appraisal is difficult to obtain and even harder to verify. The data appraisers use is historical in nature and may not anticipate a forward moving, changing market. The broker, or appraisal user, is encouraged to provide any requested materials and share all pertinent information, especially sale or lease-comparable data.
It is a good idea to become familiar with options when ordering an appraisal. This includes what type of ownership interest in the real estate is to be valued, or which valuation approaches should be used. There are three basic approaches an appraiser uses when estimating value. If any of the three approaches are not completed (for example the Cost Approach which takes into consideration rising construction costs) important trends directly impacting value may be overlooked.
Appraisals are used in a variety of scenarios including establishing value for potential sale, appealing property taxes or underwriting for financing purposes. Appraisals are complex reports based on limited information and a commercial broker can assist in providing data and interpreting current market circumstances. If you are looking to order an appraisal, contact a licensed appraiser so an accurate and reliable report will be delivered.
