Can an AR licensee appraise a commercial property?

[The Warrior Monk]

If there's a problem later on nobody is going to cut you any slack based on the idea that you're a beginner. Your work will be judged against what a competent commercial appraiser would have done in such an assignment. It ain't rocket science but it also ain't a house.

Ditto x10.

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For the OP, keep in mind state license law is only the first part of it. State licensing law is the bare minimum when it comes to requirements. The next issues are

1. Making sure that your client fully understands your license situation; and
2. Making sure this is acceptable to your client and/or intended user.

 

[CANative]

FTR, I have yet to see a reasonable commercial appraisal report from a residential licensee who's never had any commercially competent supervision.

Where are they screwing up mostly?

 

[Michigan CG]

Where are they screwing up mostly?

The screw up comes from having a residential mentality (no insult intended to residential appraisers). The little narratve provided is residential in nature as is the analysis.

I find little explanation of why they do what they do and why they do it. The income approach is almost always terrible or not even developed.

 

[The Warrior Monk]

Where are they screwing up mostly?

Basically, every stage of the analysis.

Example: Residential appraiser appraises legal nonconforming multi-unit property (> 4 units) that needs a careless smoker. Appraiser concludes improvements are not the HBU of the property, and that the HBU of the property is to be redeveloped with SFR. The appraiser is correct that the current use is not the HBU, but concludes the wrong HBU. Any commercial appraiser familiar with the area knows the HBU is to redevelop with condos or co-ops. That use is also a nonconforming use, but it is allowed for various reasons that include health department rules and ZBA precedence for other similar properties in the area...the appraiser had no idea because this situation is atypical to properties SFR properties.

Another example, different issue: Appraiser appraises commercial, single-tenant property (retail/office use). Comps include multi-tenant properties, gas stations, industrial properties, etc., with no explanation nor obvious understanding of what affects the value of these properties.

More examples: Appraiser uses residential form format and fails to meet minimum USPAP standards for reporting.

I can go on if you want.

 

[George Hatch]

The ones I've seen generally have little or no access to the appropriate data, little or no understanding of the dominant attributes of these properties and how they relate to the values, little understanding of the relationship between gross vs net income and how to derive or build cap rates. About 2/3 of them have poor report writing skills. I have yet to ever see a decent HBU analysis in any of those reports. Of the few reports I've seen that are at all readable those were all cloned off of someone else's work.

Having said that I think it only fair to note that those residential appraisers who would attempt to jump into a pool that deep without any supervision or assistance are not part of the upper 50% to begin with. I think there are a lot of residential appraisers who are clearly capable of making the transition with some of the easier non-res property types if they have a little supervision.

The thing about appraising non-res properties that makes it "hard" is that the scope of practice is so much broader, and most of these different property types have their own little quirks. That and the dramatically reduced amount of quality and quantity of comparable data. Commercial appraisers can't just rely on an MLS subscription to provide them with everything they need in the way of comps.

 

[CANative]

Thanks Mich, Dave and George. Good information.

I'm thankful for the opportunity to be training myself without supervision under circumstances where I don't have write actual appraisal reports.

 

[Mr Rex]

Boyd is there any commercial RE in Hopland other than grow houses guised as SFR? What is the cap rate for a high end glaucoma clinic/holistic center?

 

[CANative]

I work all areas north of Los Angeles. Ag land in the San Joaquin Valley, gas station/C-stores, 20 to 300 room hotels/motels, 40 unit condos held as a single portfolio, industrial property, warehouses, furniture stores, parking lots, taxable possessory interests, mixed use commercial/residential (150 residential units over 12 commercial spaces at ground level), etc., etc.

Nothing in Hopland yet.

 

[David Mescon]

How come out of all the brilliant CG minds that responded to the OP, nobody has mentioned that the PIQ is residential not commercial? A five unit residential property barely qualifies as a large residential income property. It is not commercial - it is residential. When appraising 500+ unit apartment complexes I have referred to them as large residential income properties - not commercial properties.

On a more pragmatic note, what percentage of buyers and sellers of five to ten unit apartment buildings do you think know the difference between the AGI and the NOI? How many know what a cap rate really is? I smell a lot of self-importantism here... The guy's already appraised the property once - I'm sure he could do it again, but, if I were him, I would associate with an experienced CG on this one property, because he does sound weak, (no offense intended), and if the report is ever scrutinized he could be in deep doo-doo. Besides, IMO, he owes it to his client to produce a high quality product and his experience is limited.

One final thing, I'm not sure if we're the only state like this, but in HI a CRA can appraise absolutely anything without a commercial component, i.e., I can do small and large apartment complexes, high rise condo. projects and large residential subdivisions, among others.

 

[The Warrior Monk]

How come out of all the brilliant CG minds that responded to the OP, nobody has mentioned that the PIQ is residential not commercial? A five unit residential property barely qualifies as a large residential income property. It is not commercial - it is residential. When appraising 500+ unit apartment complexes I have referred to them as large residential income properties - not commercial properties.

I've carefully avoided that.

The differentiation in the residential and general credentials, in my interpretation, is due to methodology rather than property type.