Keys to a Strong Commercial Appraisal

A strong appraisal will have a substantial impact on the strength of a commercial project. On the purchase side, it can be the difference between funding the deal. On the refinance side, it impacts whether can return capital – and how much – to investors. To ensure you obtain the strongest appraisal, consider helping the appraiser. After all, the appraiser is human, and a helping hand can go a long way.

1. Send Your Underwriting to the Appraiser

An appraiser will identify market incomes and expenses, but sending a clean, well-thought out, analysis can influence the appraiser. Not only that, the appraiser now knows the ballpark you are expecting for the appraisal. Include market data to support your underwriting. This makes the appraiser’s job much easier, and makes the appraiser more likely to rely upon the work you’ve already done.

1. Send Financials

Send the appraiser the existing financials, as necessary, to demonstrate how the property is performing. If the property is outperforming the market, you’ll want the appraisal to represent that, and the only way the appraiser can connect those dots is by reviewing existing financials.

1. Send your Business Plan

If you’re purchasing an asset and you plan to add value, include a business plan demonstrating how you will do that, and why you think you will achieve that. Will you simply be raising rents? Are you going to ramp up advertising? Are you going to devote capital to capital expenditures resulting in increased income? Will there be additional streams of income you will implement? Will you decrease expenses, and if so, how? If you have executed a similar business plan previously, be sure to send that to the appraiser as well, to demonstrate that you can execute.

1. Market Analysis

Dovetailing with your underwriting, include your market analysis of market rents and expenses. Additionally, if there are strong comps reflecting a strong cap rate, include those as well to make the appraiser’s job easier and increase the likelihood that s/he will rely upon those comps.

1. Tell the Appraiser your Purchase Price/Expected Valuation

Simply telling the appraiser where you expect the valuation to be can go a long way. Sometimes, an appraiser is analyzing a property without any context or expectation on price – for example during a refinance appraisal – so if you provide a ballpark, the appraiser at least has a reference point. Human nature could kick in for the appraiser and the appraisal may come back closer than it otherwise would have.

These relatively painless practices could positively impact your appraisal. Given the low risk and potentially high reward, consider implementing these practices, or something similar, into your practices and procedures.