Commercial Appraisal
This is the standard valuation method used in appraising commercial real estate. The appraiser considers the earning figures of comparable properties to determine how much income a business in this property could hypothetically generate.
The cost approach in commercial real estate appraisal assesses how much the property would cost to build in the current market, considering land prices, materials, labor, construction, and expected depreciation.
This method is also called the sales comparison approach. An appraiser compares the property to the sales prices of similar properties in the area, as well as consider the market conditions.
Similar to the market approach, this method compares the gross rent of similar properties in the area in order to reach an appraised value of the property. With this method, the projected value of the property is divided by the projected income of the property.
Apartment buildings or other commercial rental properties typically use a commercial real estate valuation method assessing the value per unit in the building.
This approach allocates a projected value per square foot that tenants and renters can use inside a rental property to appraise a property.
Depending on the size and complexity of the property to be appraised, it might take less than an hour to several hours to inspect the property. Some clients perceive this as the entire process but the truth is that it is just the beginning. Appraisers research public ownership and zoning records, investigate demographic and lifestyle information, and compile comparable sales, replacement costs, and rentals. They then analyze this information as it relates to the value of the property. Finally, they write a report on their findings. The inspection is just the beginning of an appraisal process that may take several days or even weeks.
You will probably be asked if you can provide a property tax bill, a set of drawings of the property, income statements, and other things. You might not know why an appraiser is asking you for something but it is best to provide whatever you can. Appraisers have no interest in unduly expanding their work files but they do need certain information and the more you provide, the more quickly they can complete the assignment.
Appraisers are professional skeptics. They will seek to verify anything that you tell them from other sources. Appraisers are always thinking about how they will defend their opinions if they are ever brought to court, even in assignments in which litigation appears unlikely.
Appraisers must follow the International Valuation Standards and, in some cases, the Uniform Standards of Professional Appraisal Practice, which, among other things, requires them to provide an unbiased opinion. Failure to follow this might result in disciplinary action from the state, including revocation of an appraiser's certification. If an appraiser refuses to do something that you ask for, it is probably because of the obligation to adhere to these ethics.
Appraisers are obligated to maintain client confidentiality, so if you are not identified as the client in the report, the appraiser cannot release the appraisal report or any other confidential information to you. If you order an appraisal as part of a property tax appeal and are afraid that the appraised value might be higher than the assessed value, you can rest assured that the appraiser won't release the results to the property tax board without your permission.
Make sure the appraiser knows who you want to use the report. The intended users are people or parties identified in the appraisal report and are the only ones who are authorized to use the report.
A "restricted use report" is the shortest and least expensive type but can only be used by the client. Fees can vary based on the size of the property as well as the scope of the appraisal, but a good starting point for a restricted report might be $2000 to $2,500. A "summary report" summarizes the data and analysis and can be used by any intended user and can cost upwards of $5,000. A "self-contained report" contains all of the details of the data and analysis but is rarely requested. If you tell the appraiser how you intend to use the report, he or she can guide you as to what type of report you will need.
The amount of work involved in reaching conclusions does not depend on the type of appraisal. With a restricted use or summary appraisal, the appraiser will compile large amounts of information that are retained in a work file but are not included in the report. For this reason, the differences in fees between the various types of reports are less than the amount of information contained in the reports might indicate.
Appraisers can appraise property as of the date of inspection, as of a past date (a "retrospective appraisal") or as of a future date (a "prospective appraisal"). It is important that you establish the correct date of valuation for your needs.
Last but far from least, it's important to tell the appraiser what your interest in the property is. For example, if you want to know what a property is worth free and clear – such as a warehouse you want to move your business into – you are interested in what's called the "fee simple interest." In other words, you simply want to know the value of the building and its property. On the other hand, if you want to know what a property is worth to a landlord when occupied by a particular tenant or tenants, you want a "leased fee interest." Finally, if you want to know what a lease is worth to a tenant, you want a "leasehold interest." This is a common request when people look to buy businesses, as they need to know what the value of the lease is to that business. Be sure to identify which property interest you want appraised.