10 Facts to Demystify Commercial Real Estate Appraisal

Once you’re approved for a commercial mortgage in Los Angeles, you can get ready for an appraisal, which is the next important step. You would want the appraisal to go as smoothly as possible, irrespective of whether you’re the seller or buyer. However, commercial real estate appraisals can get complicated at times, even for people who have sold or bought a home before.

Here are 10 important things to keep in mind while preparing for the commercial property valuation process.

1. There’s Much More to Appraisals Than Inspection

Inspection, which may last several minutes to hours, is only a small part of commercial property appraisal. Comprehensive valuation involves multiple steps which can take several days or weeks. Other key components of the appraisal process include:

● Detailed study of public ownership and zoning records
● Investigation of demographic and lifestyle information
● Comparable sales analysis
● Replacement costs and rentals analysis
● Appraisal report compilation

2. Don’t Deliberately Provide Misleading Information

Facts eventually come out since appraisers will always investigate and verify the information you provide with credible sources. Thus, you should be as truthful as possible to the best of your knowledge. Your credibility can be questioned if you misrepresent facts, and that can hurt your interests in a commercial real estate transaction.

3. Share Everything You Think Is Relevant

The appraiser may request certain documentation to help with accurate valuations. It’s in your best interest not to withhold any pertinent facts. Some of the information that you may need to provide includes:

● Property tax bill
● Property’s architectural plan
● Income statements

4. Appraisers Are Bound to a Strict Code of Ethics

The appraiser must comply with the Uniform Standards of Professional Appraisal Practice or risk punitive state action like certificate revocation. As per this code of conduct, they must provide an unbiased valuation of the property.

5. The Appraiser’s Client Is the Party That Requested Appraisal

The appraiser must observe client confidentiality at all times. As such, they cannot share the appraisal report with other parties. Clients can be:

● Mortgage brokers in California
● Yourself when questioning the appraised value in a property tax appeal case

6. Decide Who Can Access the Report

If you order an appraisal as a prospective buyer, you may intend to share the report with parties such as:
● Your mortgage lender
● The seller
● Property tax appeal board

7. Know the Three Types of Appraisal Reports

● “Restricted use report,” which is the least expensive, is for client’s use only
● “Summary report” summarizes data and analysis and may be accessed by any intended user
● “Self-contained report” is comprehensive and covers all appraisal data and analysis

8. Report Type Isn’t Indicative of the Scope of Work

Appraisers gather larger amounts of data and information than compiled in a restricted-use or summary report. They retain the left-out appraisal information in a work file.

9. Date of Valuation Is Very Important

Any event associated with the appraised property, such as death that occurs after the appraisal date, can affect the property’s value. Valuation dates can vary as follows:

● Date of inspection appraisal
● Past date or retrospective appraisal
● Future date or prospective appraisal

10. Let the Appraiser Know Your “Property Interest”

“Property interest” examples include:
● “Fee simple interest,” tells you the value of the building and its property
● “Leased fee interest,” tells the value of a rented property to its landlord
● “Leasehold fee interest” determines the value of a lease to a tenant

These are some important facts to keep in mind when heading into the appraisal phase of a commercial real estate transaction. If you need affordable financing for an investment property, contact the team at Fidelity Mortgage Lenders today. We are reputable mortgage lenders in California that you can count on every time!

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