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In addition to identifying comparable properties, the appraiser must conduct research to find the owners and/or managers of the properties. Then appraisers must contact them to find out about the operating income.
Often, owners or managers are not willing to share information about rents. Returning a random call from an appraiser also may not be a high priority for them. This adds much time and legwork to the process.
After calling eight to 10 owners and getting information from four or five, the appraiser must go out again and view each property to take pictures and complete the income approach. Only then will the appraiser have enough information to complete the assignment.
Cost approach to value
The cost approach identifies the cost to build or rebuild a property if the property were destroyed or damaged significantly.
The appraiser determines the cost approach valuation via a cost-data book, such as the widely used Marshall & Swift Commercial Cost Handbook. Construction lenders also use this publication to verify construction costs when underwriting a potential construction loan.
The cost approach is used for valuing new construction. It also used when the appraiser must derive the insurable value of new or seasoned properties to secure hazard insurance.
Ultimately, a commercial appraisal typically requires multiple field trips, numerous phone calls and lengthy analysis to complete two (and maybe three) appraisal approaches. As a result, a residential appraiser can probably complete four to seven appraisals in the time that it would take to complete one commercial appraisal.
With their additional necessities, commercial appraisals are more costly and take a longer time to complete.
Neil Beldock is
senior vice president and national sales manager for Velocity Commercial Capital, a direct, institutional wholesale lender specializing in commercial real estate loans of as much as $3 million. Velocity is a nationwide lender offering stated and full-doc loans. Beldock has more than 20 years' experience in commercial real estate lending and can be reached at (818) 575-9700, (203) 964-9400 or email@example.com. All inquiries are welcome.
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