Top Appraisal Tips
These 5 steps help streamline the appraisal process.
Appraisals rarely make or break commercial real estate deals, but they can delay them — much to the consternation of brokers waiting on commission checks. Often the problem is due to the lack or unavailability of critical property information. However, a little front-end teamwork between brokers, owners, and buyers can streamline the entire appraisal process. In many instances, the broker is the quarterback that carries the deal into the end zone.
Many times buyer/borrowers don't realize what information is critical to the appraisal process, and therefore, they aren't well equipped to provide it. A skilled broker can step in and play this pivotal role. While it does take time and perhaps a little money, the costs are minor compared to a purchaser walking away from a deal at this stage or delaying a closing.
The best game plan to prevent surprises, such as inaccurate appraisals, is thorough preparation. When the appraiser sets the property inspection date, the broker and owner should make certain that the necessary information is available. The information that appraisers request most often is similar to what lenders require for their due diligence processes. Therefore, brokers should readily provide extra copies of critical documents to save time and speed the process.
Brokers who follow these five steps can assist appraisers in preparing their reports. Be certain to customize your own checklists to ensure each area is covered appropriate to your property and market.
1. Provide Property Information
Surveys, site plans, building plans, and other written descriptive information help appraisers accurately assess a property. Provide data regarding easements, wetlands, or other conditions, such as the need for earthquake or flood insurance. If the property is not yet constructed, provide approval documents, cost information, building and site plans, and the project's timing.
2. Share Historical Data
If the property is under contract, provide a copy of the contract to the appraiser. If the purchaser plans to renovate the property, provide a description and costs. Cost information also is important for recent construction.
If the current owner made improvements to the property, such as a new roof or ventilation system, provide costs and improvement dates.
3. Disclose Lease Documents
Owners of leased properties should provide copies of the current leases as well as lease summaries if available. Appraisers usually can determine basic terms, such as start dates and base rents. However, determining expenses and who pays for what may be less clear. For instance, if a tenant is responsible for expenses over the base year, inform the appraiser of base amounts and what the tenant historically has been charged. Initial clarification of these and other lease terms, such as renewal clauses, saves time and additional work in the end.
4. Explain Expenses
Historical expense information for income-producing property is invaluable. At minimum, owners should provide three years' worth of records. Accountant-prepared statements are the most effective documents, since tax return information can be difficult to decipher. Brokers or owners should explain unusual and one-time expenses, such as a large repair, so that the appraiser doesn't misinterpret expense information.
Distribute Market-Related Material
Brokers often possess specific market information that is difficult for appraisers to obtain. Recent sales, properties under contract or listed for sale, or comparable rents can assist ap pr aisers in reaching appropriate valuations. Specific circumstances often come into play during transactions. For instance, the property seller/owner may be under duress to make a deal, resulting in a low sales price or low rents. Discussing such circumstances upfront can clarify critical details throughout the process.
The cost of assisting the appraiser might seem like a burden to some brokers and owners, but it can save all parties unnecessary frustration in the end. The overall results not only assist brokers, sellers, and buyers, but also improve the entire commercial real estate profession as more accurate appraisals help to ensure better quality loans.