10C — September 28 - October 11, 2018 — Fall Preview — M id A tlantic

Real Estate Journal

A ppraisal By Carlo L. Batts, MAI, Rittenhouse Appraisals Understanding the commercial appraisal process (The three approaches)


any people are unfa- miliar with the com- mercial appraisal/

The typical commercial real estate appraisal should take anywhere from 30 hours to 4 weeks once the work has been agreed to, resulting in an in- depth narrative (appraisal) report ranging anywhere from 60 to 100+ pages. The purpose of the commercial real estate appraisal is to estimate the market value of the subject property in accordance with the accepted value estimat- ing procedure. This is often done for lending purposes as it proves to a lending institution that the value of a property in question is comparable to the amount borrowed.

There are three traditional approaches involved in the valuation of real property: The Cost Approach, The Income Capitalization Approach, and The Sales Comparison Ap- proach, as described below. • The Income Capitaliza- tion Approach Is defined as "a set of proce- dures through which an ap- praiser derives a value indica- tion for an income-producing property by converting its an- ticipated benefits (cash flow and reversion) into property value." The income capital- ization approach formula is Market Value = Net Operating

Income / Capitalization Rate. • The Sales Comparison Ap- proach (also known as the market-data approach) Is defined as "a set of ap- praisal procedures in which a value indication is derived by comparing the property being appraised to similar properties in the marketplace that have sold recently, applying ap- propriate units of comparison, and making adjustments to the sale prices of the comparable's based on the elements of com- parison." • The Cost Approach Is defined as "the estimate of market value for the subject

property based on an analysis in which the total depreciated reproduction or replacement cost of improvements is added to a value estimate for the un- derlying land. This approach is based on the principle of substitution, which implies that no prudent person will pay more for a property than the total cost of acquiring a site and constructing improvements with similar functional util- ity, without undue delay. The cost approach reflects market participants’ recognition of the relationship between cost and value. Replacement or repro- duction cost – depreciation + land value = value. Many times, commercial real estate appraisers will utilize all three methods in their reports, effectively analyzing all as- pects of current market trends in the process. Commercial appraisal re- ports feature detailed site and building improvements, diagrams & sketches, sales history & ownership, zon- ing information, regional and market area descriptions, flood plain analysis, age/life analy- sis, market analysis, detailed published surveys, detailed highest & best use as vacant and improved, detailed valu- ation analysis, rent and sale comparable's, expense compa- rable's, cap rate comparable's, adjustment grids and more. The commercial appraisal costs/fees vary primarily by the complexity of the assignment, availability of data, required turn-around time and scope of work. Here, quality is the most important characteristic (not price) to be in search of when choosing a commercial ap- praiser as this could mean the difference between securing a loan, closing a sale, or choosing the best asset. When seeking quality com- mercial real estate appraisals, our passion for service and real estate is what drives the direction of our company. Rit- tenhouse Appraisals employs a staff of appraisers that are members of the Appraisal Institute and have obtained the MAI designation from the Institute as well as real estate analysts with extensive local market expertise, who will partner with you for a true col- laboration on your real estate projects. Carlo L. Batts, MAI is the principal of Rittenhouse Appraisals. 

v a l u a t i o n process. The a p p r a i s a l p r o c e s s i s defined as "a sys t emat i c p r o c e d u r e employed to provide the answer to a

Carlo L. Batts

client's question about the value of real property." Ap- praisals can be ordered at any given time to determine the current market value and a fair sales price for a property.

When it comes to getting deals done in today's fast-paced market, time is more important than ever. We think waiting 4-5 weeks for an appraisal is unconscionable

Made with FlippingBook - Online Brochure Maker