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Feasibility Studies and Appraisers

by Garrett Steele on Aug 6, 2015 Feasibility Studies 1620 Views

It's a fact that real estate developers are a leading consumer of feasibility studies, but many developers are not searching for the best location for a new mini-storage building or considering the best site location for a new Walmart store.  They often already own a site and they are usually just trying to get it developed for a use that appeals to them because the use or use is in their opinion the most profitable one.  Often they have expended hard money to further their plan.

One of the problems associated with these assignments is that the proposed use or uses upon which the entire study rests is not the highest and best use.  It’s the “my property is a hi-rise site” syndrome.  Just because you want to build a hi-rise and you own a property doesn’t mean that your particular site is well suited to that use.

While the possibility of a hi-rise development may excite potential investors there are many factors that go into making a site suitable for hi-rise development.  Most appraisers can listen to an owner or owner / developers plan, look at the drawings and form their own opinion regarding highest and best use.  Appraisers consider; legally permissible, physically possible and financially feasible alternatives as part of every appraisal assignment.

Appraisers who take consulting assignments that require them to consider the feasibility of using a site for a specific purpose are often engaged because an acceptable result is implied.  An appraiser must accept in their own mind that a project is the highest and best use before they accept the assignment otherwise they are accepting it knowing that the project they are considering the feasibility of will fail. 

Does an appraiser take thousands of dollars and then conclude that a project is not viable when he or she knew it from the beginning?  It suppose that it happens, but most developers won’t hire an appraiser without having some positive feedback from them after an appraiser has had a chance to review the conceptual plan.

Basically a feasibility study forms the basis for lending and / or raising investor funds.  So the entire project usually hinges on a positive outcome.  It's a trap for an unwary appraiser since the feasibility study document when finished is often immediately used as a marketing tool.  Developers point to the document and say "look, Joe Appraiser says our project is viable, he is a credible real estate appraiser in this town so this project is golden!"

If you were the consultant that developed the supply, demand and financial projections from the market research / feasibility study you completed you are almost assured of becoming the de facto appraiser for the project.  Otherwise a third-party needs to be willing to re-analyze everything that you did and he or she may not come up with the same result.  Developers don’t want to take on that risk.

So you can move from one assignment to the next, feasibility study to full blown appraisal.  So you had better make some decisions about highest and best use before you accept the feasibility study, otherwise you are headed for troubled waters.  

Garrett J Steele, ASA, MRICS, BAE at gsteele07@gmail.com is an experienced Michigan Certified General Appraiser specializing in commercial real estate appraisals in Charlevoix, Crawford, Genesee, Lapeer, Livingston, Macomb, Oakland, Roscommon, Washtenaw and Wayne County.  His Internet website is http://www.horizonappraisals.com

Article source: http://www.appraisalarticles.com/Feasibility-Studies/4557-Feasibility-Studies-and-Appraisers.html

http://www.horizonappraisal.com
Detroit Area Commercial Real Estate Appraiser
Garrett1

Garrett Steele

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Garrett J Steele, ASA, MRICS, BAE at gsteele07@gmail.com is an experienced Michigan Certified General Appraiser specializing in commercial real estate appraisals in Charlevoix, Crawford, Genesee, Lapeer, Livingston, Macomb, Oakland, Roscommon, Washtenaw and Wayne County. His Internet website is http://www.horizonappraisals.com

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