A Quicker Less Expensive Appraisal Report
“Change is inevitable-except from a vending machine.” Robert C. Gallagher
This post lays out the case for less expensive and more quickly delivered restricted appraisal reports for commercial properties that we are now offering across Michigan and Colorado.
The universe for users of commercial appraisals is relatively large, ranging from estate attorneys needing to pin down a property’s value, CPAs looking to establish a minority owner’s interest in a building, to an inter-family transfer of property that needs an unbiased third-party to establish a sales price.
At the end of the day, all well-intentioned users typically want the same product: a written appraisal establishing an unbiased, credible opinion of value. Great, we’re all on the same page so far.
Enter the Commoditization of Everything
But now as consumers we’ve been trained that what we are looking for should be some combination of very inexpensive, if not free, and delivered rapidly, if not instantly. For example, show me one homeowner who has called an appraiser in the past five years to get a pre-listing appraisal of their home rather than pointing their browser to Zillow, or the like, to get an instant read on their home’s “value”. Or the new business owner who uses an online “attorney” service to file for an LLC rather than sitting down with a local attorney for a more customized operating agreement that better suits their needs.
Enter the Professional Commercial Appraiser
To round out my qualifications as a professional appraiser I spent over six years at secondary school getting a BS in Civil Engineering, an MBA with an emphasis in Finance; and then spent years pursuing my MAI designation from the Appraisal Institute. I mentored under one of the most respected appraisers in Michigan and toiled over market analyses, highest and best use studies, and income statements.
Unfortunately, when the semi-regular call comes to my office of a potential commercial appraisal user looking for a fee quote, I always know the path of the conversation before it gets going… Often these prospective clients’ last valuation experience was either a free guestimate from the above-mentioned Zillow to maybe $700 for a residential form report. When I explain to them that a typical commercial appraisal is north of $2,500 and can cost well over $5,000 depending on the property’s complexity and depth of analysis required and will take about two to three weeks to complete, the silence is deafening.
By my estimate, 75% of appraisal users are somewhat shocked at such fees, as they most often encounter residential appraisals that typically cost a fraction of commercial reports.
Enter the Restricted Appraisal Report
While the majority of our appraisal revenue is still generated from typical appraisal reports and many commercial real estate investors are happy to pay a small percentage of their building’s value to have a thoroughly documented, narrative appraisal report, we are starting to offer an alternative for select users who would like a lower cost option, that still provides the same credible value conclusion.
This post is going to illustrate a way that you, the user of an appraisal, can possibly save significantly on the appraisal fee; however, there are very specific circumstances that allow for this, and communication is key.
There are typically two formats of appraisals that a commercial appraiser can provide: restricted format appraisals and typical format ones. Typical format appraisals, previously known as either summary or self-contained appraisals, are the commercial appraisals you are likely used to seeing, about 100+ pages of narrative reporting that covers the breadth of real estate economics. These typical reports of ours include in-depth analysis of the subject’s area; neighborhood; current market conditions including supply and demand; an analysis of capitalization rates; comprehensive comparable writeups; etc. Writing these sections takes my team hours to research, compose, and proofread (often twice).
Hence, there is tension between some prospective users, who would like a commercial appraisal for just a bit more than a residential one and myself, a well-qualified MAI who would like to do the engagement while being commensurately reimbursed for my time, overhead, and expertise.
To help solve this dilemma, Woodbank Group is now offering a restricted format appraisal for select commercial clients. These reports have similar research and work files behind them as typical reports but cost us significantly less to produce. We can often deliver these reports in under a week with a typical delivery time of two weeks. These savings are a result of some key differences.
Criteria for us performing a restricted appraisal report
- We will only offer these to a single user per report
- If you and your attorney, or you and another owner need to use the report, this is not an option for you
- We will only offer these to users who are sophisticated with real estate
- You need to represent to us that you can use the restricted appraisal report’s conclusion without the background narrative that accompanies a typical appraisal report
- We will only offer these for non-complex properties
- Think single-user industrial buildings or offices; small apartment complexes; strip centers with local tenants
- The inspection for restricted appraisal projects are typically done by a 3rd party
- A key cost savings for these reports is that the field work is not completed by an appraiser, but instead by a trusted resource for field inspections
- The analysis in the restricted appraisal report is very brief
- Our work file may have similar analysis, but the report contains a very brief analysis and focuses on succinctly communicating our opinion of value
That said, the answer is always the same! Our conclusion for a restricted appraisal and for a typical one will be the same. In fact, if at a later date, you need the restricted report turned into a typical one (with the same date of value) we can do so for a modest additional fee, and relatively short lead time.
Positives and Negatives
Let’s review the positives and negatives of a restricted appraisal report over a typical one.
- Lower cost
- Quicker deliver
- Well researched and credible answer
- Ample opportunity to discuss appraisal process and conclusions
- Inspection / observation typically exterior-only
- Not suitable for litigation or third-parties
- Less opportunity to discuss appraisal process and conclusions
So, if you’re looking for a lower cost, quicker option than a typical appraisal report ask about a restricted appraisal report option. We offer these throughout Michigan and Colorado.