On The Case: Commercial Appraisal Reports

What do Sherlock Holmes, Nancy Drew, Inspector Clouseau  and Lt. Theo Kojak all have in common? That’s right, they all could have been a member of the Argianas team! Their experience as detectives would have prepared them well for a career in commercial appraisals.

We encourage you to think of your appraiser as a detective… a property detective. He or she will go out to look at the property and gather valuable facts and statistics before assigning value to real property rights. The detective work comes before, during and after! By the time you meet your Argianas appraiser, we’ve already put our fingers on the keyboard to pull up research from our proprietary databases, and if your property is indeed an odd one, we’re out there learning about what it is that you do. When we finally meet with you, we’re eager to sit down and hear the story of your property, whereas others may just want to spend a few minutes and be on their way. By the time we’re done and you receive our commercial appraisal report, we’ve exhausted the resources available and we understand the nuances of both your property and the specialty industry it’s associated with.

Understanding commercial appraisal reports may seem a bit daunting, but we swear it doesn’t involve economic hand-holding or complicated formulas.  Have no fear! The team at Argianas & Associates is here to break it down for you so you can understand a commercial appraisal report like a pro.

good things come in threes

First, we will help you determine the type of commercial appraisal report you have received. There are three different types of reports; self-contained report, summary report, and restricted-use report. The type of report you receive will depend on the purpose and it’s intended use. Why was it required in the first place? Answering that first, before reading the report, is key to understanding a professional commercial appraisal report and what (and how much detail) will be in the report. Although different, each type of report should really tell a story.

A Self-Contained Report is one that fully describes the data and analysis used in the appraisal. This is typically the most detailed and thorough report of all three. It includes a broad range of information in comprehensive detail within the report and usually makes minimal references to files outside of the report.

A Summary Report does just what its name implies. It’s a summary of the data and analysis used. Clients can usually expect to find all information significant to the appraisal in the report. If a client needs more information, it can be found in a separate file outside of the report. These reports are often the easiest to understand for readers who are new to commercial appraisal reports.

A Restricted-Use Report only gives the conclusion of the appraisal. You could say it’s a bit… restrictive. A Restricted-Use Report should contain information about the solution of the appraisal problem, including the scope of work. But because this type of report is brief, other significant data is not included and will be in a separate file outside of the report. This report typically has the least amount of information and appraisers should always ensure the client understands the restricted use of it before agreeing upon it.

start with the basics

Like any new project, the basics are usually the best place to start. That goes for reading a commercial appraisal report too! Before you start churning through 50+ pages of information, think about the foundation needed to make up the report. What is the property type, owner, user or investment? Is it a leased fee or fee simple property? What is the value date? What was the appraisal written for? What was the purpose of the report and the intended user? These are all important questions that a reader should ask before attempting to read the appraisal report.

the good, the bad and the ugly

Keep in mind that appraisals come in all shapes and sizes; however, well-written reports are easy reads, while not-so-great reports are confusing and overly detailed.

In general, a good, narrative appraisal report will be an estimated 50-130 pages depending on the complexity of the subject property. Anything more than 130 pages will become difficult to follow. Too much information should lead you to question the quality of the information included, especially if it starts to cause confusion. We love our quotes around here, and as Mark Twain said, “A successful book is not made of what is in it, but what is left out of it.” This is absolutely true of an appraisal. The report should be brief and clear, only including the information that is required. It should read like a story of the property. If you find yourself in analysis paralysis, there’s something wrong.  We prefer shorter reports with meaningful details rather than the inclusion of voluminous public record details that lend little to one’s understanding of their property’s valuation.

Your appraisal, if properly prepared, should address all real property right complexities. Regardless of whether the property is an existing or proposed high rise hotel, condominium/apartment development, shopping center, or industrial facility, the appraiser must research and understand commercial leases, and if applicable, going concern nuances. If the appraiser you retain only has a hammer, everything looks like a nail. The Argianas team has a full toolbox!

Perhaps most importantly, the commercial appraisal report should follow appropriate guidelines. For many appraisals this includes adhering to the Uniform Standards of Professional Appraisal Practice (USPAP). The USPAP Regulations are a set of national control standards. You can read more about the Standards here. And when appraisals are required for certain litigation problems to be solved, we follow the Uniform Appraisal Standards for Federal Land Acquisitions (Yellow Book).  In any instance, reports must be written to address applicable control regulations (IRS standards, FIRREA/Financial Institution Reform and Recovery Act standards, etc.). If the appraiser doesn’t follow the appropriate control regulations, that 100+ page appraisal sitting on your desk is as good as a paperweight. The Argianas team knows the rules and we’ve been following them for the past 30 years.

let the argianas & associates do your detective work

A commercial appraisal report may be required for many different situations like tax assessments, mortgage lending purposes, business dissolutions or negotiations between sellers and buyers. If you are needing a commercial appraisal report prepared, or have any questions, do not hesitate to give us a call at 630.390.0113 or complete this form. To receive more real estate appraisal resources or receive our original thought pieces, be sure to join our mailing list to receive our e-newsletter.