The commercial appraisal industry includes many outstanding professionals who produce excellent appraisals. But what do you do when an appraisal produces more questions than answers?
Narrative commercial appraisals come in many formats and can range from very brief to rivaling War and Peace in page count. Many include a lot of charts, graphs, statistics and calculations, but often they don’t add up to a supported estimate of value.
I’d like to suggest one way to read narrative commercial reports that can provide the reader with a benchmark for knowing when to ask for more information or clarity. Try approaching a narrative commercial appraisal with the expectations you would have reading a short story or novella. Look for the underlying, consistent story about the subject property, and make sure there is enough information to follow that story through the entire appraisal report. When you reach the end of the “story,” you should be able to understand the appraisal and feel that the ending, or the final estimate of value, makes sense.
A well-written narrative appraisal report should give you a thorough understanding of the subject property. This should include the property’s negative and positive points as well as the highest and best use analysis, which sets the stage for the valuation process. The approaches to value should reflect the different attributes of the subject property in a clear way. Any gaps in logic ought to be a prompt for the reader to ask questions.
By the way, all of this is spelled out in the Uniform Standards of Professional Appraisal Practice (USPAP). Standard 1 states; “In developing a real property appraisal, an appraiser must identify the problem to be solved, determine the scope of work necessary to solve the problem, and correctly complete research and analyses necessary to produce a credible appraisal.” USPAP defines “credible” as “worthy of belief,” adding that “credible assignment results require support, by relevant evidence and logic, to the degree necessary for the intended use.”
It doesn’t stop there. USPAP Standard Rule 2-1 also requires every appraisal report to:
- clearly and accurately set forth the appraisal in a manner that will not be misleading;
- contain sufficient information to enable the intended users of the appraisal to understand the report properly; and
- clearly and accurately disclose all assumptions, extraordinary assumptions, hypothetical conditions, and limiting conditions used in the assignment.
As you can see, our industry’s standards require appraisers to present a logical, supported and understandable appraisal report. Yet many are not.
Albert Einstein is credited with saying, “if you can’t explain it simply, you don’t understand it well enough.” The appraisal process for a commercial property can be very complex, and a well-written commercial appraisal should be clear, accurate and comprehensible. If those standards are not met, that’s when you need to start asking questions and request more information.
If you would like to experience for yourself what a well-written commercial appraisal report looks like—that is, one that tells a compelling story about a property and ends with a well-supported, believable value that inspires trust—contact me at firstname.lastname@example.org. I’d be happy to show you the difference.