Commercial evaluations are like alpacas. No one really knows for sure what to do with them. Do they produce eggs or milk? Are they yummy to eat? Can they move heavy things like camels? The real answer is they’re fiber animals for annual shearing. So, what’s the bottom line for; “When should banks use evaluations?”
The general consensus is order evals only for simple, small existing (not proposed) property.
I’m sure there’s some discussion points on what’s simple versus a complex property. How about a stabilized 30,000 square foot neighborhood shopping center? Is that small or large? Most agree specialty properties like subdivisions, marinas and c-stores are complex and should not be valued with evals. Should the borrower get a copy of the eval? Conflicting interpretations and opinions continue.
There are various providers of evals, such as LRES, Boxwood Means, ExpertEval, CBRE, First American, etc. The challenge is that bank appraisal departments would love to have their commercial fee panel provide evals.
Fee appraisers fall in these 3 buckets:
Bucket 1: “I would never do evals when I get paid more money for a full appraisal.”
Bucket 2: “I have considered them, but feel I can’t make any profit.”
Bucket 3: “Leveraging software tools, evals are now our highest profit/hour report format.”
The Bucket 3 appraisers recognize that providing evals creates a lot of goodwill with their bank clients. Through relationship client-focused attitude, it often generates more “normal” appraisal work. Key to a cost-effective eval is software and processes that allow a solid report within the limited scope of work.
Some appraisers fear the liability of the eval product. If you’ve been in business long enough to recognize Van Halen, Boone’s Farm and The Dewey Decimal System, then you’ve likely experienced lawsuits with zero merit. So don’t worry about it. You’re a good appraiser, you’ll nail the number regardless of the format. Don’t forget, you can easily be sued for your “normal” appraisals you produce every day. E&O is also a thing.
Since our industry seems reluctant to produce a standardized eval, I’ll volunteer mine.
If you go to the following link, you can download a sample of a commercial eval produced by my appraisal firm, the Dohring Group. One of the reports reflects sales only, the other income only. In return, we ask for your contact info, because I believe our software solutions can move the needle for your appraisal firm and your appraisal department.
The format is based on a lot of feedback from various community and regional banks. I think you’ll find a general balance of appropriate level of information. That said, I would love your feedback on this eval format to make it even better.
Let’s get the conversation started and solve the eval mystery.
