Inspections of commercial properties vary greatly between commercial and residential property. Commercial appraisals are subjective and are based on a number of different factors. Commercial appraisals often depend on the amount of rent an area can secure, compared with expenses required to maintain the grounds. An inspection to determine a fair appraisal can take anywhere from one to several hours, but the final appraisal can take weeks.
What Goes Into Final Appraisal?
Commercial appraisers find comparable plots in the neighborhood to base their estimates on, much like they do in the residential industry. They look at sales of comparable buildings and the properties they inhabit, rental rates and replacement costs. Additionally, the surrounding area plays a significant role in the final estimate. Appraisers investigate the demographics of the neighborhood and the lifestyle of the residents. They look up zoning regulations and ownership records. Appraisers always seek to back up their findings with verifiable facts in case they are ever brought into court to testify about their appraisal.
Who Gets the Report?
An appraisal usually is ordered by a lender when considering whether to finance a commercial property. As such, the appraiser must turn over any findings to the person or company that ordered the appraisal and can’t show it to anyone else. The results of an appraisal are confidential. So if, for example, you order an appraisal prior to requesting a tax appeal, you don’t have to worry about the appraiser turning over the report to the county tax department without your authority. Anyone who orders an appraisal must give authority to the appraiser naming who can see the results.
When Appraisal Was Completed
The date on an appraisal is vital. Circumstances can change overnight that affect the final estimate, particularly when the property is in an urban area. For example, you might receive an appraisal on a vacant lot one day, and that night, a shooting occurs in a building across the street. Suddenly, the value of the intended commercial property is subject to change drastically. The stigma associated with the crime can reduce the final value of the property.
How the Property Will Be Used
Because a big part of the valuation process of an appraisal revolves around how much income the property can produce vs. how much it costs to maintain, appraisers must look at the best use of the land to come up with an appropriate appraisal. Appraisers look at the best uses of the property based on potential community development, what kind of business will be built on the site, and what business the site legally and financially can support. Appraisers provide a professional opinion based on the analysis of all their other findings to come up with the most probable use and its impact on the value of the property.
- INC: 10 Things to Know About Commercial Real Estate Appraisal
- Stein Valuation: The Appraisal Process
- American Society of Appraisers. "Appraisals FAQ Everything You Want to Know About Appraisals and Appraisers." Accessed April 1, 2020.
- National Association of REALTORS. "Appraisal & Valuation." Accessed April 1, 2020.
- Federal Register. "Real Estate Appraisals." Accessed April 2, 2020.
- Appraisal Institute. "The Appraisal Profession." Accessed April 1, 2020.
- Appraisal Institute. "Don’t Like Your Home’s Appraisal? Here’s What You Can Do." Accessed April 1, 2020.
Linda Ray is an award-winning journalist with more than 20 years reporting experience. She's covered business for newspapers and magazines, including the "Greenville News," "Success Magazine" and "American City Business Journals." Ray holds a journalism degree and teaches writing, career development and an FDIC course called "Money Smart."