Can an AR licensee appraise a commercial property?

[David Mescon]

I've carefully avoided that.

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

That you have, Mr. W. I couldn't agree with you more, (as to the methodology thing).

 

[George Hatch]

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.

Because 5+ units are not classified as residential properties with the federal banking regs nor in the AQB Appraiser Qualifications Criteria nor at most states.

I've seen a couple CRs take a stab at apartments over the years and I've seen them screw those up, too. The temptation to throw in a 4-unit comps for a 5-unit building may be pretty high but it can also really mess things up because for the most part those properties aren't directly comparable to one another. In this region, anyway. I once saw a CR use duplex sales in valuing a 6-unit building; and for no good reason, 'cause there were lots of 5-8 units comps available in the area.


I just had an assignment a couple months ago here in SD where I followed a CR in valuing a mixed use property that had originally been built as two residential units but where the front building had been converted and occupied as offices. This appraiser (improperly) used an HC to value the property as two residential units even though the front units had been used as office and retail for years. There were even leases in effect on those office units and they encumbered the property rights appraised, so the Fee Simple Interest didn't apply as such anyway. After that lender rejected that appraisal and that deal I had to come in and explain why I was charging so much more and why I wouldn't be able to complete and submit my report within the next 12 hours.

I saw another one where a CR appraised a post office with a lease from the U.S. Postal Service and used gas stations and restaurants as comps - again for no good reason. No income approach at all and the property interest valued was the fee simple interest. So many report omissions it wasn't even humorous in hindsight let alone in real time. That got submitted to a federally insured bank too.

The point is that everyone has their limitations. I pass on certain types of assignments on a regular basis even though I have the license to do them, and I count those as profitable decisions for me to make when I do it. There's almost never any money in taking on an assignment that I'm not competent to complete at the outset. On occasion I do get roped into assignments where I'm not competent; invariably those come up as a service to my client in order to maintain the relationship and I have to go to lengths to bring myself up to speed. It ain't no fun.

 

[David Mescon]

George, I'm not knocking your experience, however, I have seen tons of commercial appraisals performed by CGs that were chock full of errors of both omission and commission. The mistakes are just more technical. I'm not gonna get into a match over this, but I'm pretty tired of the overall CG condescension, and, the misguided attempts by many CGs to pressure residential appraisers to apply any number of practices better suited to the practice of commercial appraisal.

 

[George Hatch]

I should probably explain to you that my opinions on the subject have nothing to do with protecting my turf. No CR is a threat to my appraisal practice or my client list.

I get phone calls from residential appraisers on a regular basis regarding various appraisal situations, including those involving technical questions. I regularly get referrals for non-res assignments from residential appraisers I've met over the years. In some cases and depending on the property I offer to help them perform the assignments themselves if I think its one they can handle. That includes providing data they don't have access to, providing pointers on how to handle the problem and even sending over report samples for them to use as templates as well as limited supervision. No money involved in any of that; it's all on a professional courtesy basis. Sadly, most of them don't take me up on my offer. But that's their choice and I respect that.

The point is that while I would never take on a trainee I'm always willing to help an appraiser out who wants to learn something, particularly if I think the alternative is them taking a blind swing at it and potentially causing problems for themselves or their clients in the process. But by the same token I'm not going to cut a CR any more slack for doing something dumb in an assignment than I would if a CG did it. Some mistakes are no big deal, others are more serious. Those are the ones I don't want to see anyone make, regardless of their licensure.

 

[Michigan CG]

..........I'm pretty tired of the overall CG condescension, and, the misguided attempts by many CGs to pressure residential appraisers to apply any number of practices better suited to the practice of commercial appraisal.

David,

From your posts it is obvious that you have been exposed to multiple property types and have been in this business a long time. You have the knowledge some CG appraisers don't have.

I have read multiple reports by CG appraisers from pre-licensing and post licensing that are pure garbage.

What you need to consider is YOU are NOT typical. Take the average CR who was recently trained (maybe by a mentor who didn't really know what they were doing) and appraises mostly single-family homes. I have found that these folks could not define a GRM, any type of multiplier and would not know what a cap rate is, how to derive one and what it means if one jumped in their bed with lipstick.

I am sure there are many CR appraisers who are more than qualified to appraise 6-unit apartment buildings. Those people are the vast minority of their peers.

 

[David Mescon]

I have found that these folks could not define a GRM, any type of multiplier and would not know what a cap rate is, how to derive one and what it means if one jumped in their bed with lipstick.

There ya go talkin' all kinky again.

I can't argue about the large numbers of poorly trained res. guys. I guess what gets me is that there is a much higher percentage of not too slick CGs than is generally accepted. Granted, you've gotta have more education, and in some ways more knowledge to become a CG, however, lots of CGs are as bad at what they do as CRs are at what they do. The other thing is that residential work is much more art than commercial. In my experience, most good commercial guys aren't very good at complex residential because they're too analytical and not artistic enough. It bothers me that being gifted as an artist in this regard is often looked down upon by the CG community as a whole. Much of what makes a residential appraiser good wouldn't make a commercial appraiser good and vice versa. It bothers me that many of the conditions residential appraisers are subject to were derived largely from concepts more well suited to the practice of commercial appraisal. I just love these folks who want to statistically prove every residential adjustment. It usually doesn't work that way. The fact is, almost anything related to a residential appraisal someone can prove statistically, I can disprove statistically, a number of times over, usually using either the same, or very similar techniques that they used. Some of the toughest work I have ever done has been the making of judgment calls for exceedingly complex residential appraisals. Some, (actually many), things just can't be reliably proven. There's a process of elimination, and an application of reasonableness. It's very similar to an HBU analysis for a highly complex commercial project. It's not black and white, and it's not easy, and many people can't do it very well, if at all.

It would be nice if we could respect the differences between the commercial and the residential appraiser and embrace the commonalities. Neither is better - just different in a number of ways.

 

[PropertyEconomics]

There ya go talkin' all kinky again.

I can't argue about the large numbers of poorly trained res. guys. I guess what gets me is that there is a much higher percentage of not too slick CGs than is generally accepted. Granted, you've gotta have more education, and in some ways more knowledge to become a CG, however, lots of CGs are as bad at what they do as CRs are at what they do. The other thing is that residential work is much more art than commercial. In my experience, most good commercial guys aren't very good at complex residential because they're too analytical and not artistic enough. It bothers me that being gifted as an artist in this regard is often looked down upon by the CG community as a whole. Much of what makes a residential appraiser good wouldn't make a commercial appraiser good and vice versa. It bothers me that many of the conditions residential appraisers are subject to were derived largely from concepts more well suited to the practice of commercial appraisal. I just love these folks who want to statistically prove every residential adjustment. It usually doesn't work that way. The fact is, almost anything related to a residential appraisal someone can prove statistically, I can disprove statistically, a number of times over, usually using either the same, or very similar techniques that they used. Some of the toughest work I have ever done has been the making of judgment calls for exceedingly complex residential appraisals. Some, (actually many), things just can't be reliably proven. There's a process of elimination, and an application of reasonableness. It's very similar to an HBU analysis for a highly complex commercial project. It's not black and white, and it's not easy, and many people can't do it very well, if at all.

It would be nice if we could respect the differences between the commercial and the residential appraiser and embrace the commonalities. Neither is better - just different in a number of ways.

David .. you have touched upon a pet peeve of mine. Appraisers dont PROVE anything ... I believe, however, with the right analysis they can substantially support their conclusions ... you say there are judgement calls and I agree with you ... but those judgements should be made based upon adequate analysis of the available data.

Mind you, residential and general appraiser alike, often suffer from laziness. Most appraisers dont understand what SUMMARY means ... they never read the forms they use and as such never provide the data required as a minimum by the form itself.
Even in narrative reports I have seen things simply stated that there is no way to tell if they are accurate or not ... some call that judgement but many of us also call it a WAG ... if there were support why would it not be summarized in the appraisal report?

Unlike you, I find that most commercial techniques can be applied very well to residential work. Commercial appraisers dont so much care about the "rules" but more so care about the analysis and what it takes to really determine some adjustments. Not all ... I agree with you ... but many certainly get it.

Residential appraisers, as a large group, make me kinda ill. I review lots of work that is thrown together, never reviewed before being sent, and then the reviewer is accused of being "nit picky" .... perhaps if the appraiser was a bit more "nit picky" prior to pressing send they would catch the mistakes and produce a better and more credible report.

There is plenty of blame to go around .. and again in my opinion the vast majority of it simply boils down to the appraiser being too lazy to adequately and competently completing the job.

 

[DMZwerg]

They remain the same in California.

Bottom line: OK for AR to appraise commercial property if competency met and not for a federally related transaction (AND allowed in the specific state)

I added the line "AND allowed in the specific state" as in some states the tighter definitions are applicable to all appraisals a state licensed or certified appraiser does regardless of whether or not it is for a federally regulated transaction.

 

[DMZwerg]

Because 5+ units are not classified as residential properties with the federal banking regs nor in the AQB Appraiser Qualifications Criteria nor at most states.

To throw some fuel oil into the mix I know of municipalities where 4+ unit "residential" properties are actually zoned "commercial". This makes 4-units in those areas a bit of a gray area because although license level permits appraising them as a LR or CR the zoning includes 4-8 or 4-12 unit apartments buildings (depending on the municipality). In one the local MLS & city/county tax websites all stop relating information the same way as 2-3 unit residential properties and thus finding initial data is more problematic for residential appraisers as well.

Just saying :new_all_coholic:

 

[The Warrior Monk]

To throw some fuel oil into the mix I know of municipalities where 4+ unit "residential" properties are actually zoned "commercial". This makes 4-units in those areas a bit of a gray area because although license level permits appraising them as a LR or CR the zoning includes 4-8 or 4-12 unit apartments buildings (depending on the municipality). In one the local MLS & city/county tax websites all stop relating information the same way as 2-3 unit residential properties and thus finding initial data is more problematic for residential appraisers as well.

Just saying :new_all_coholic:

The commercial zoning isn't the problem per se, since licensing does not make that distinction. However, the consideration and analysis of uses that fall outside on one's credential can be a problem.