What Does a Commercial Real Estate Appraisal Entail and What Should You Know About It?
A commercial real estate appraisal is the inspection and thorough appraisal of a real estate property, for the purpose of valuing it correctly before it is sold or purchased. There is much information available about the intricate details of a complete commercial real estate appraisal, and most commercial agents and investors can already tell you a lot about them. However, for those buyers and investors who are at the beginning, and who still know very little about the process itself, it’s important to gain a little practical background about the appraisal itself and what it might entail.
A lot of people with limited information on these appraisals will tell you that they’re just basic inspections. However, the inspection itself is actually just a small part of the complete appraisal process. Depending on how large the building is and how complex its construction and its various details might be, the physical inspection of the property might take less than an hour. However, aside from that, the appraiser will also do some extensive research to find out more about demographics, public zoning records and even the lifestyle of the local population or the trends followed by the businesses who are established in the region. A thorough appraisal will also take into account the materials used for the building’s construction and the cost and availability of materials and tools required for maintenance or repairs throughout the years. Once all this information is compiled, it can give appraisers a fair assessment of the property’s true value and how it should relate to its price.
Unlike what most would believe, appraisers can’t judge the value of a property in a subjective way. They will have to, instead, adhere to a strict ethical code that is known as the Uniform Standards of Professional Appraisal Practice. This standard of practice establishes the extent of the errors that are allowed in an appraisal and demands appraisers to be completely unbiased when it comes to dealing with their findings and presenting the information they have gathered as well as their final assessment on the value of the property. Failure to provide an unbiased appraisal can and often does result in the appraiser losing their certification. So, if an appraiser seems to be somewhat stern and inflexible when it comes to some of the terms of the appraisal process, you can be sure that it’s because their own livelihood is on the line.
The appraisal process is typically requested for the purpose of financing the purchase of a commercial real estate property. In most cases, the client of the appraisal is the lending company or bank that is expected to part with the money requested by the borrower as part of the loan process. Lenders will require appraisers to not only be extremely thorough in order to give them an accurate assessment of how much the property is worth, but also to maintain professional confidentiality regarding the client’s identity. This last fact is important to keep in mind, since the appraiser might not be able to release the information they have about the appraisal, simply because you are the borrower and you’re asking them a few questions.