What a commercial appraisal tells an owner
The report states the value of the property as of a stated date, for a stated purpose, with the evidence behind it. For income property the evidence usually includes rents, expenses and the leases in place, as well as comparable sales. The Interagency Appraisal and Evaluation Guidelines, written in 2010 for federally regulated lending, say an appraisal must include any approach to value that is applicable and necessary, whether cost, income or sales comparison, and reconcile them. That shows more than one method can matter for a given property, and it is a lending context, not a rule for every commercial assignment.
An owner learns three things: what the property is worth now, what is driving the value, and how sure the appraiser is, through the limiting conditions in the report.
How owners use the value
- Financing. A lender may need the value to decide how much to lend.
- Selling or buying. A documented value supports a price discussion.
- Estates and partnerships. Heirs or partners need one number when ownership changes.
- Planning. An owner may compare the value with the cost of an improvement.
Using the number is different from changing it. Improving rents, leases or condition can change what a later appraisal finds, but an appraisal measures the property as it is on the date.
Where the residential practice ends
Randy M. Sonns runs a residential appraisal practice. His pages say that if you need a commercial appraisal you should get in touch, and that he can connect you with a skilled local appraiser who has commercial-specific experience. California's license classes also draw a line: a Certified Residential appraiser may appraise non-residential property only up to a $250,000 transaction value, and a Certified General appraiser may appraise all property types.
Questions an owner should ask about the report
What property rights and what interest in the property does the value cover?
Which approaches to value were used, and why?
What leases, rents and expenses were assumed, and where did they come from?
What date does the value apply to?
Who may rely on the report, and who will receive a copy?
What conditions or assumptions limit the conclusion?
An appraiser who can answer these plainly is giving you what you need to use the report with a lender, a partner or an attorney.
What to prepare for a commercial request
Gather the address, the property type, the leases or rent roll if the property produces income, recent operating expenses, and the purpose and date for the value. Name the party that will rely on the report, because a lender or a court may specify what it needs. The page on other property appraisals lists the questions to ask first.
Frequently asked questions
Can a commercial appraisal increase my property's value?
No. It measures the value on a stated date. Changes to rents, leases or condition can change what a later appraisal finds.
Which method values income property?
Appraisers consider the sales comparison, cost and income approaches, and the mix depends on the property and the purpose.
Who orders a commercial appraisal?
The party that needs the value: a lender, an owner, an executor, a partner or an attorney.
How do I start?
Send the address, the property type, the purpose and the date. If the property is outside the residential scope, ask who should do the work.