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Why are Commercial Appraisals so Expensive?

by Administrator on Apr 28, 2015 Real Estate 2457 Views

It is my opinion that appraisers try first and foremost to bargain for a reasonable compensation for their time.  Most appraisers know what they need to pay their monthly bills and they know what their appraisal volume is assuming that the market for their services is moderate to strong. 

Single-family residential (SFR) appraisals within tract home developments in Las Vegas, Nevada typically command a fee of about $ 350 since many of these reports take only a few hours of travel and a few hours of form completion to complete.  When these same reports are done in a rural setting with hours of traveling required or when property sales are few and far between the assignment fees can be considerably higher.

Larger homes and custom built homes require more work since measurements, descriptive comments and finding comparable sales is usually difficult and time consuming.  They are however generally less expensive than commercial reports. 

Since commercial appraisals take much more time and effort to complete than residential appraisals fees for their completion are usually much higher.  Commercial appraisals are usually narrative reports not forms that often consider factors like; multiple building improvements, multiple tenancy, mixed-uses and many commercial appraisal reports can require the completion of 100 to 150 pages of descriptive detail and analyses to complete.  They often require an extensive income analysis, a sales approach and a cost approach.  It can take weeks to complete an appraisal report on a complex commercial property.

Clients often point to the boilerplate, which admittedly can be 50% to 70% of a report, but that doesn’t mean that the remaining portion of the report that is specific to the property being appraised didn’t take a great deal of time to complete.  Even using previous appraisal templates, online databases, computerized spreadsheets and the mentioned boilerplate pages it’s still a time consuming process.    

A consideration for both residential and commercial appraisers is time pressure.  If someone wants an appraisal report completed in one week that would normally take two weeks or more that means an appraiser is going to have to work on the assignment through the weekends and during evening hours.  There are often a fixed number of hours that it takes to complete an appraisal assignment, so more money is paying for motivation and long hours.  Some people think that it really takes an appraiser half the time that they claim to complete a report, but usually fast appraisal assignment completions have to do with redundancy, doing a similar report or a new report on a property done before, or as noted it’s the long hours.

I’m not saying that an appraiser can’t “cut corners” but there is only so much that can be done without increasing the risk that something is omitted or that something was done wrong.    

Another reason that an appraiser may increase his or her assignment fee is for having to deal with attorneys and the litigation process.  Depositions, hearings and trials are often combative.  Attorneys turn an appraiser’s analysis and their objective search for a market value truth into a game that targets the appraisal for a courtroom attack that can make an appraiser question their own work.  Appraisal methodologies are not pure science and thus appraiser opinions, all based in part on informed but subjective decisions, can be picked apart by a good attorney every time.  How much is it worth to take on those legal attacks?  Usually it takes a substantial fee to motivate an appraiser who is willing to prepare the best report, accept the litigation process and communicate results on the stand under pressure.

A commercial appraisal can be simple they are for example small 3,500 square foot (SF) one story, one tenant office buildings or they can be quite complex if they are for example large-scale retail center with 15 buildings and 20 vacant sites, with some buildings leased to multiple retail tenants, some for fast food and anchor tenants. 

I have had potential clients call me and ask me why a commercial report cost more than $ 400.  If you really think about how much work is involved you wouldn’t ask that questions and I may be able to save you a phone call to your local appraiser by telling you that he or she can’t do a one page reports because you don’t need anything more than that.  We really don’t have a choice, licensing requires that our analyses and reporting meet criteria as laid out by the Uniform Standards of Professional Appraisal Practice (USPAP).

For more appraisal information contact Glenn Rigdon MA, MRICS, ASA is a Las Vegas / Henderson Nevada based appraiser who can be contacted via email or via his business website Appraiser Las Vegas  (http://www.appraiserlasvegas.com), or you can also click on “Contact Us” on the home page of this website or visit my public profile at LinkedIn at http://www.linkedin.com/pub/glenn-rigdon-ma-mrics-asa/1a/30b/879/.

Article source: http://www.appraisalarticles.com/Real-Estate/4548-Why-are-Commercial-Appraisals-so-Expensive.html

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