Appraisal Institute Urges Caution On Commercial Appraisal Threshold Increase

[Deleted member 126639]

The thing to consider is that,

in outlying depressed areas, where home prices are very low,

so too are commercial values very low,

So what happens when none of the real estate in certain small towns and areas have values above threshold levels?

No appraisers are needed for lending. Will private work support an appraiser staying there?

Will values ever "recover" to threshold levels where an appraiser will be required, yet no one has appraised anything in that area for some years?

This will effectively become redlining and a further stratification between the poor and the not-so-poor.

This is a very interesting perspective.

 

[Michael S]

The thing to consider is that,

in outlying depressed areas, where home prices are very low,

so too are commercial values very low,

So what happens when none of the real estate in certain small towns and areas have values above threshold levels?

No appraisers are needed for lending. Will private work support an appraiser staying there?

Will values ever "recover" to threshold levels where an appraiser will be required, yet no one has appraised anything in that area for some years?

This will effectively become redlining and a further stratification between the poor and the not-so-poor.



.

I did an evaluation (restricted report) on a restaurant in a very small town in a rural area recently. I think the value was something like $150k. This was one of maybe three restaurants in the town and the population in a 30 mile radius was probably under 5,000. I didn't have to do the inspection, a third-party was hired to do that. Otherwise we would have had to charge another $1,000 or so just to cover the travel/opportunity costs. I was actually surprised at the data I was able to find, even though I ended up looking throughout about half the state in similar small isolated towns. The lender was a national one but I'm not sure if a local bank would have felt comfortable making a loan in a market that small without an appraisal given that there is basically no data. Especially in a non-disclosure market like NM.

 

[Meandering]

I did an evaluation (restricted report) on a restaurant in a very small town in a rural area recently. I think the value was something like $150k. This was one of maybe three restaurants in the town and the population in a 30 mile radius was probably under 5,000. I didn't have to do the inspection, a third-party was hired to do that. Otherwise we would have had to charge another $1,000 or so just to cover the travel/opportunity costs. I was actually surprised at the data I was able to find, even though I ended up looking throughout about half the state in similar small isolated towns. The lender was a national one but I'm not sure if a local bank would have felt comfortable making a loan in a market that small without an appraisal given that there is basically no data. Especially in a non-disclosure market like NM.

Sad you had very little data.

I can think of many places in NE PA that would not make threshold and there is adequate data, and appraisers in those areas.

But once appraisers are no longer needed in those areas, they'll retire or leave.

Then, if something might meet the threshold, an out of area appraiser will need to travel, and of course that makes the appraisal more expensive, for a property that may or may not be boarder line to a threshold. This will only hurt those areas, and those owners.

.

 

[Eli]

Sad you had very little data.

I can think of many places in NE PA that would not make threshold and there is adequate data, and appraisers in those areas.

But once appraisers are no longer needed in those areas, they'll retire or leave.

Then, if something might meet the threshold, an out of area appraiser will need to travel, and of course that makes the appraisal more expensive, for a property that may or may not be boarder line to a threshold. This will only hurt those areas, and those owners.

.

And local knowledge is lacking. An appraiser with data on all kinds of similar commercial properties for years is missing. Both macro and micro data is lacking compared to an appraiser who is local and worked that market for years and years.

 

[Eli]

I did an evaluation (restricted report) on a restaurant in a very small town in a rural area recently. I think the value was something like $150k. This was one of maybe three restaurants in the town and the population in a 30 mile radius was probably under 5,000. I didn't have to do the inspection, a third-party was hired to do that. Otherwise we would have had to charge another $1,000 or so just to cover the travel/opportunity costs. I was actually surprised at the data I was able to find, even though I ended up looking throughout about half the state in similar small isolated towns. The lender was a national one but I'm not sure if a local bank would have felt comfortable making a loan in a market that small without an appraisal given that there is basically no data. Especially in a non-disclosure market like NM.

How long did it take you? I don't mean to put you on the spot. You don't have to answer.

 

[Mark K]

There is many reasons for that. Word travels fast in a small town. They see some things better. Risk, bias, reputation, borrower trust, etc etc. It's like Mayberry.

That's part of it.

The bigger part is that the banks are all privately owned and they're risking their own money. The presidents/owners get grumpy when they take a big hit on a bad loan because it comes out of their pocket.

 

[Eli]

That's part of it.

The bigger part is that the banks are all privately owned and they're risking their own money. The presidents/owners get grumpy when they take a big hit on a bad loan because it comes out of their pocket.

Their stockholders and board members are serious and they meet folks on the street everyday. It's more like Mayberry.

I agree with you totally. I appreciate you sharing it.

 

[Michael S]

How long did it take you? I don't mean to put you on the spot. You don't have to answer.

16 hours according to my log. Very skinny report so most of that was simply trying to find and confirm three other restaurant sales in similar very small isolated markets elsewhere in the state (already had one in in the database). I included a secondary table of all of the local commercial sales according to the one broker in town. I think there was one listing and three sales in the last three years though none were restaurants, just other random commercial/retail buildings. Actually provided pretty decent support for my concluded range.

 

[Deleted member 126639]

That's part of it.

The bigger part is that the banks are all privately owned and they're risking their own money. The presidents/owners get grumpy when they take a big hit on a bad loan because it comes out of their pocket.

Banks do not risk their "own" money. The money given to a borrower didn't exist prior to its creation as part of a debt instrument. While there are consequences to loan default, the only tangible loss is that of the future interest obligation, not the principal itself.

I would recommend reading this paper put out by the Bank of England.

http://www.bankofengland.co.uk/publ...lletin/2014/qb14q1prereleasemoneycreation.pdf

 

[Amy Perkins]

Is this to keep residential appraisers from appraising commercial properties?