What The Commercial Appraisal Process Is Not…
There is often confusion within the commercial real estate world regarding what an appraisal is. Well, let’s start with what it isn’t…
As leaders in the commercial real estate appraisal management industry, we at Oxford too often notice confusion around exactly what the commercial appraisal process is… and what it is not. To help clear up some of the confusion, we’ve decided to start with at least addressing some of the things an appraisal is not. Sit back, relax, and take a peak.
A commercial real estate appraisal is not…
…The same as an assessed value
Each and every year, owners – building owners, hotel owners, apartment owners, multi-family home owners, hospital owners, etc. – receive a tax bill based on the assessed value of their property in question. A misconception, the tax report may even refer to a value as the market value. This is not the same as the market value of a real estate appraisal for lending purposes.
Assessed value is the most probable price that a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. It’s used to assess the property’s tax value.
If a property owner is looking to sell their establishment of building, the market value would not even come into play. Instead, an AMC-conducted appraisal will determine the market value for many purposes. Both values are performed by appraisers but with different purposes at hand:
Assessed value:
- Is for taxation purposes
- Uses a mass appraisal process
- Does not include an inspection of the property
The real estate appraisal process includes:
- Inspection of the property in question
- Market analysis
- Comparable sales analysis
…A home inspection
A real estate appraisal and home inspection are often confused despite the fact that they are totally different in purpose and in scope of work. Here’s what you need to know:
Real estate appraisal inspection:
- Performed by a licensed real estate appraiser
- Purpose of the is to determine the condition of the property (building and surrounding land) in question and note features when compared to similar properties within the market
- Determines market valuation of property in question
- Hired by lending institutions (often via an AMC)
- Sometimes hired by sellers to perform pre-listing appraisals
Home inspection:
- Performed by a licensed home inspector
- Purpose is to determine the functionality of the homes systems, including heating/cooling, plumbing, and electrical
- Can uncover potential hazards that may have not otherwise been observed
- Does not include market valuation of property
- Hired by a home/property buyer or seller
…Owned by the borrower
Although the borrower pays for an appraisal, the appraisal is ordered from the AMC or lending institution and belongs to that institution. In conjunction with the borrower, the AMC and/or lender chooses the appraiser to perform the appraisal.
The appraiser must be unbiased in their opinion throughout the entire appraisal process. At Oxford, our reviewers are independent and we do not have an affiliated brokerage, meaning no conflict of interest.
And although the borrower may not “own” the appraisal, they should always be informed. For example, those who choose to work with Oxford AMC are given 24/7 access to our online portal where you can access all relevant documents that are updated in real time.
We bid out the project using your approved appraiser list. Because your local relationships are important to you, they are important to us. You select the winning bid based on your criteria. We present you with the options we’ve compiled, and you choose the appraiser we will engage on your behalf. When completed, we will review and certify the appraisal for 100 percent compliance.
…Determined in a cookie-cutter fashion
The appraisal value cannot be determined using a single, specific formula. Sure, the square footage of a property is useful and is definitely considered; but there are many other aspects that come into play throughout the appraisal process. They include, but are often not limited to:
- Geographic location
- Type of property (commercial, rural, etc.)
- Amenities
- Property/land condition
- Quality of construction
- Age
- Surrounding area
…An internet estimate
In the age of today’s technologically driven society, there are a number of internet outlets that offer an estimate of market value for a given property, based on the borrower’s entry of the property’s location.
First of all, this service is geared toward single family homes – not larger properties and institutions.
Second, single-faceted internet services do not consider or know such things that appraiser considers, including the condition of the home, comparables, and possible external influences.
As with any data that is available, an AMC and appraiser personally analyze the property in question using industry-specific metrics and processes.
At the end of the day, the appraisal process is complex and requires the expertise of a trusted appraiser and, even more, AMC. From the beginning, Oxford has been committed to three core principles – expertise, service, and independence. The experts at Oxford work with both lenders and regulators to offer unmatched third-party appraisal management expertise to our financial institutions and clients.
You deserve to work with the experts. Contact the experts at Oxford Commercial Appraisal Management to learn more today.