Commercial real estate appraisers in the United States are licensed professionals who specialized in valuing proposed or existing commercial properties.
The licensing requirements for commercial real estate appraisers may vary slightly from state to state
but generally follow the minimum standards set by the Appraiser Qualifications Board (AQB) of The Appraisal Foundation, a national non-profit organization that sets standards for professional appraisers. The AQB requires candidates to complete a minimum of a bachelor's degree, specific appraisal coursework, and supervised experience before they are eligible to take the state exam and receive a license.
vetting your appraiser
We note that the experience, qualifications and competence of a commercial real estate appraiser can vary materially and so a vetting process should be pursued to ensure that the right commercial appraiser is being selected for the type of property being valued.
Here are some steps to consider when vetting a commercial real estate appraiser:
- Check their credentials: Ensure that the appraiser is licensed in the state where the property is located and has the appropriate level of certification for the type of property being appraised. You can also check their education and training background, as well as any relevant professional affiliations.
- Review their experience: Ask the appraiser about their experience appraising similar types of properties and in the same geographic area. You may also want to ask for references or examples of previous appraisals they have completed.
- Verify their independence: Ensure that the appraiser is independent and has no conflicts of interest that may impact their valuation. They should not have any financial or personal interest in the property being appraised.
- Evaluate their methodology: Ask the appraiser to explain their methodology for valuing the property and how they will approach the appraisal. This can help you evaluate their competence and ensure that they are using industry-standard methods.
- Get a fee estimate: Obtain a written fee estimate from the appraiser that includes a breakdown of the costs involved in the appraisal. This can help you compare pricing and ensure that the appraiser's fees are reasonable.
By taking these steps, you can better vet a commercial real estate appraiser and ensure that they are capable of providing a competent appraisal for your property.
appraisal licensing is crucial
The licensing and professional status of the appraiser must also be addressed to ascertain if the appraiser being vetted is an appraiser trainee, residential or commercially licensed appraiser, and does the appraiser have an advanced professional designation such as an MAI. The levels of commercial real estate appraisal licensing within each US state may vary. Here are the typical levels of commercial real estate appraisal licensing:
- Trainee: A trainee appraiser is an entry-level appraiser who is working under the supervision of a certified appraiser to gain the necessary experience and education to become a certified appraiser.
- Licensed/Certified Residential Appraiser: This level of appraiser is licensed to appraise residential properties with one to four units or smaller commercial properties with a value of up to $250,000.
- Certified General Appraiser: This level of appraiser is licensed to appraise all types of real property, including commercial properties with no value limit.
In some states, there may be additional levels of licensing or certifications beyond the Certified General Appraiser level, such as the MAI (Member of the Appraisal Institute) or the ASA (Accredited Senior Appraiser) designations. These designations indicate a higher level of expertise and experience in the appraisal industry.
It's important to note that the specific requirements for each level of licensing can vary by state, and commercial real estate appraisers must also comply with federal regulations, such as the Uniform Standards of Professional Appraisal Practice (USPAP), which sets ethical and performance standards for appraisers nationwide.
residential vs. commercial properties
How do you know if the property you want to be appraised is a residential or commercial property? Residential properties are categorized differently from commercial properties with residential properties typically defined as one- to four-family residential dwellings without any commercial component (store, office, etc.). Examples of commercial properties include multifamily, apartment and office buildings, hotels, retail strip or shopping centers, mixed-use and industrial properties, vacant land, and special purpose properties (oil refineries, renewable energy facilities, houses of worship, etc.). Generally speaking, if your property’s exclusive legal use and occupancy is not a one-to-four-family dwelling, then it is considered a commercial property and must be appraised by a licensed commercial real estate appraiser if the estimated market value of the property is $250,000 or more. For commercial properties less than $250,000 in estimated market value, a residential appraiser may be able to appraise smaller commercial properties, such as mixed-use properties that have both commercial and residential units. The maximum value of such a property that a residential appraiser can appraise may vary from state to state, but it is typically limited to properties that have a value of $250,000 or less.
Commercial real estate appraisals are both required and conducted throughout the United States, Canada, Mexico, and around the world. The need for appraisals of commercial properties is present in most countries, where the ownership and transfer of commercial properties is subject to regulatory requirements and laws that often require a valuation by an independent and qualified appraiser.
The process of conducting commercial real estate appraisals may vary from country to country, as there may be differences in regulations, legal requirements, and market practices. However, the principles of valuation, such as determining the highest and best use of the property, analyzing comparable sales, and assessing market trends and conditions, are generally applicable worldwide.
When is a commercial appraisal required
It's worth noting that some international organizations, such as the Appraisal Institute and the Royal Institution of Chartered Surveyors (RICS), have established global standards for property valuation, which aim to promote consistency and transparency in the valuation process. These standards may be adopted or referenced by national appraisal organizations and regulatory bodies around the world.
A commercial appraisal is typically performed when there is a need to determine the market value of a commercial property. This can occur for a variety of reasons, including:
- Purchase or Sale: When buying or selling a commercial property, a commercial appraisal can help both parties determine a fair market value for the property.
- Financing: When obtaining financing for a commercial property, lenders will typically require an appraisal to determine the property's value and to ensure that the loan amount is not greater than the property's value.
- Property Tax Assessments: Local governments may use commercial appraisals to determine the property's assessed value for tax purposes.
- Estate Planning: In estate planning, a commercial appraisal can help determine the value of a commercial property for estate tax purposes or to distribute assets to heirs.
- Lease Renewals: When renewing a commercial lease, an appraisal can help
determine fair market rent for the property.
Overall, a commercial appraisal is typically performed when there is a need to determine the market value of a commercial property for a specific purpose.
The valuation of commercial properties may be required for a variety of purposes, including sale, purchase, lease, financing, real estate tax assessment and/or reduction (tax certiorari), legal proceedings, eminent domain, estate and gift tax considerations, Attorney General approval for the sale of not-for-profit religious buildings, fractional real estate interests, and reproduction and replacement insurance considerations. The
commercial appraisal report is typically used by lenders, investors, government organizations, taxing authorities, insurance companies, court proceedings, and property owners to make informed decisions about buying, selling, and financing commercial real estate, as well as a myriad of other legal, taxation and public good considerations directly impacting real estate ownership interests and valuation ramifications.
In order to conduct a property appraisal, a commercial real estate appraiser will typically visit the property and collect information about its physical attributes, such as the age and condition of the building, as well as its financial performance, such as the amount of rent collected and the occupancy rate. There is also strong consideration afforded to competitive market trends in terms of rental and market values, vacancy rates, market absorption and new deliveries to the market, proposed and pending construction, business demographics, sources of labor, ease of transportation, the direction of overall capitalization and discount rates, and an understanding of typical operating costs for each building type. Research must also be conducted to ascertain typical lease structures, concessions and tenant improvements pervading the subject’s market. The appraiser will also research recent sales transactions (market data) in order to compare the conveyed properties to the subject property in terms of time of sale, age and condition, size, miscellaneous considerations, and a number of alternative factors, depending on the building type.
Once all of the relevant data has been gathered and analyzed, the commercial real estate appraiser will provide a written report detailing their findings and conclusions about the fair market value of the property.
Equipped with information and WestRock at your side to answer all your questions, you’re on your way to having an appraisal for your tax purposes. Simply fill out the form and reach out to WestRock today to schedule a free consultation and see how we can help you.