Commercial Evaluations, A Perspective

Commercial Evaluations are being prepared by in-house bank staff, brokers, accountants, AMCs and third party vendors. Noticeably absent are commercial appraisers, the professionals best suited to provide credible Evaluations. Why appraisers? Competence, credibility, reliability, ethics and independent, to name a few.

Only about 20% of appraisers (smaller firms) currently provide Commercial Evaluations for their bank clients. This is a missed opportunity since Evaluations reflect work that the appraisers never would’ve received. That leaves a vacuum of opportunity for 80% of appraisers. Interestingly, most national appraisal firms have been providing Evaluations for a number of years.

There’s still confusion among licensed commercial fee appraisers (smaller firms) centering on if they’re allowed to prepare Evaluations for financial institutions. And much of the confusion seems to come from the names that are being applied to the reports.

Non-USPAP compliant Evaluations are generally allowed (though the language varies) in Alabama, Florida, Georgia, Indiana, Illinois, Oregon, Louisiana, Tennessee, Utah and Virginia. However, it’s interesting that many financial institutions would rather have USPAP-compliant “Evaluations” regardless of state law permission for appraisers to do otherwise.

The Appraisal Foundation has recently developed and presents a Non-Residential Restricted Appraisal Report format.  This two-page report does not provide any market data whatsoever. It mentions USPAP items such as scope of work, sale history, definition of market value, highest and best use statement, certification, etc. Curiously, the sample reflects a $34 million market value conclusion suggesting that size and complexity isn’t an issue for this two-page report. I suspect that this form will have traction with the largest financial institutions, but less so for the rest of the field.

The sweet spot for appraisers (today) is to provide Evaluations in the form of a Restricted Appraisal. If you’re an appraiser in Florida (a state that allows appraisers to provide “evals”), you might use this disclaimer…

This report is an Evaluation developed in compliance with the development and content requirements of the Interagency Appraisal and Evaluation Guidelines contained in the Federal Register Volume 75, No. 237 issued December 10, 2010 as allowed by The State of Florida HB 927 effective October 1, 2017.  This report also adheres to USPAP (2020-2021) standards for development and reporting of a Restricted Appraisal Report.

…therefore, your report is an Evaluation in the form of a Restricted Appraisal.

Some banks take a hybrid approach, doing Evaluations in-house and outsourcing more complex properties to appraisers. Alternatives include LRES, Expert Eval, Boxwood Means, Clear Capital and First American.

Depending on the complexity of the property, the number of approaches, the cost of Commercial Evaluations range from $500 – $1,200. Delivery is typically 5-10 business days. If a firm invests in processes and technology, this can be a profitable product on an hourly basis while meeting development and reporting requirements.

The majority of financial institutions would rather have appraisers perform Evaluations. As time goes on, I think smaller appraisal firms will realize it’s important to ask their clients what they want. It will lead to improved client relationships and additional cashflow while providing safety and soundness.

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