Commercial Appraisal Management Companies?

[Scott Lanz]

Joyce (or anybody),

Do you have sources for these commercial AVM's?

Every lender I work with is under increased scrutiny from examiners. Requests for more information on appraisals are expanding. Two recent additions from some clients include liquidation value and re-caps of discussions with local owners, Brokers, developers, etc.

My own small personal survey over the last year of clients indicated no interest in these products.


You must like to stir the pot to post in the commercial forum that you hope we all lose business.

 

[The Warrior Monk]

Hopefully the up and coming commercial AVM's will result in far less need for full commercial appraisals or commercial AMC's.

I know that this is the wish of many. Let's take the latest assignment...free-standing commercial building with 16 years remaining on lease (not recorded) at below market rates. How does the AVM take that into account?

 

[Mountain Man]

Full commerical appraisal? Is that like a "MAI appraisal"??

 

[The Warrior Monk]

Appraisal Management is becoming a profitable operation as many smaller banks are being required to show "independence". Some of these banks are filling the gaps by having "clerks" order the appraisals with reviews being feed out to third parties. Others are choosing to outsource the entire operation. C&W, CBRE and Duff & Phelps (among others) offer this as a service to lenders. A whole slew of smaller, independent operations also fill these niches.

Local commercial lenders have simply separated ordering and LOs. Appraisals are being ordered through credit divisions.

It will be interesting the see if these develop the same problems as residential AMC's. I sure hope not ...

Theoretically it could...but it won't last long. The reason is that many GCs aren't solely dependent on commercial lending work. Because of this, most GCs aren't going to be dragged over the barrel; they'll simply dump the lending end of the business.

 

[Joyce Potts]

I know that this is the wish of many. Let's take the latest assignment...free-standing commercial building with 16 years remaining on lease (not recorded) at below market rates. How does the AVM take that into account?

Exactly.

No different than many, if not most residential properties.

 

[Mr Rex]

I was talking to a CG at a CE course a few weeks back, and he described a scenario similar to what PL posted. Several lenders had gone to a bid process handled by an outside entity that also did a review before submitting the final product to the lender. He said in the past 2 months he had not gotten a single bidded job, and he had reduced his fees as low as he could possibly go to remain profitable. Apparently the big Commercial shops were paying apprentices (Trainees or Licensed or Certified newbies) to spit them out, at a fee that was below what a one man CG shop could compete with. He was worried about making his house payment.

 

[PL1957]

Exactly.

No different than many, if not most residential properties.

Actually, Joyce, that scenario is about as different from a residential property as you can get.

 

[Joyce Potts]

Joyce (or anybody),

Do you have sources for these commercial AVM's?

Every lender I work with is under increased scrutiny from examiners. Requests for more information on appraisals are expanding. Two recent additions from some clients include liquidation value and re-caps of discussions with local owners, Brokers, developers, etc.

My own small personal survey over the last year of clients indicated no interest in these products.


You must like to stir the pot to post in the commercial forum that you hope we all lose business.

My point is-- turn about is fair play. Thanks to the commercial appraisal sector, especially the AI, AVM's did not turn out to be the residential appraiser's 'tool', but their biggest competitor. Hopefully, we'll soon see some numbers as to how many billions in loans were made over the last few years based SOLELY on residential AVM's. And let's not pretend it didn't happen, because we all know it did. Ask BOA and SunTrust for starters.

Appraising is an art, not a science. Until big money can be made on AVM's, then it's a computer generated value ESTIMATE. But in place of an appraisal, so it's not the same thing--thus unregulated???

 

[Michigan CG]

Hopefully the up and coming commercial AVM's will result in far less need for full commercial appraisals or commercial AMC's.

1. What up and coming commercial AVM's?

2. Why would you want there to be commercial AVM's so that there are fewer commercial Appraisals?

3. Would you like to see the commercial world in the same boat as the residential world?

4. Commercial AVM's overall would have way too many unknowns, and commercial is about the income. An AVM doesn't, and cannot predict income. They can predict cap rates, but without an income to derive a value there is no commercial AVM.

5. Many commercial properties are regional and not local. Fed Ex warehouses are not similar to the warehouse down the street; they are a regional market. GSA facilities are not local, they are regional and national.

6. Consider a gas station on a corner. Should be worth $250/SF. Consider a gas station on a corner with raised medians and limited access. AVM cannot predict that income. Or consider a bank on a one-way street in comparison to banks on two-way streets.

7. Consider a property in downtown Smallville with its own parking lot; then consider an identical building with only street metered parking availble.

8. Consider 200 acres of farm land close to Lake Erie that can only produce 110 bushels of corm and then the 200 acres five miles away that can produce 170 bushels.

9. Consider a grain elevator in a small town on a two-lane highway. Then one with rail access, then one with rail and located on a river. Then mix and match flat storage with bin storage.

10. What about a Walgreen's with 5 years left on a lease compared to one with 25 years left.

11. Two 1,000,000 SF shopping malls; one just lost JC Penney as their main anchor and the one who gained JC Penney as their anchor.

12. An automotive factory in Detroit and an Automotive factory in Tennessee.

13. Lakefront property with riparian rights vs. a property with no riparian rights.

14. Motel on I-280 in Davenport Iowa where there is a 30,000 ADT; a motel on I-74 where there is a 75,000 ADT and a motel on I-80 where there is 150,000 ADT.

I could go on all day, but I have two commercial assignments to write, neither came with an AVM and neither through an AMC.

 

[PL1957]

I was talking to a CG at a CE course a few weeks back, and he described a scenario similar to what PL posted. Several lenders had gone to a bid process handled by an outside entity that also did a review before submitting the final product to the lender. He said in the past 2 months he had not gotten a single bidded job, and he had reduced his fees as low as he could possibly go to remain profitable. Apparently the big Commercial shops were paying apprentices (Trainees or Licensed or Certified newbies) to spit them out, at a fee that was below what a one man CG shop could compete with. He was worried about making his house payment.

If they're relying on low cost producers, they're not going to be able to stay in business. Generally, the management end of things is on a fixed cost basis, which means the longer a review takes, the less money a company makes. If you are using a low cost producer, it's pretty likely the report will reflect that. I know a couple of outfits locally (in IL) that have cancelled management contracts because they couldn't convince the banks to upgrade their approved appraiser lists to get rid of the "I'll appraise anything for $999" companies. Usually, when the low cost provider is selected exclusively, it's because the LO's still have input into who is actually bidding.