How long does an appraisal take?

A typical commercial appraisal can take between 1 and 2 weeks to complete. Residential appraisals are generally completed between 1 and 2 days.

Why do commercial appraisals take longer than residential?

Single-family residential appraisals are typically form reports, while commercial appraisals are full narrative.

Form Report: This is likely what you received when you were mortgaging your house. It is a computer-based form with check boxes and space for short descriptions, maps, and photos.

Narrative: This will be the format the bank is likely to require for financing a commercial property. It is much lengthier, and the opinion of value is presented in a narrative format. Narrative appraisals are also used in litigation.

What is an appraisal?

An appraisal is a formal opinion of value intended for specific users, and for which the appraiser assumes responsibility.

How much does an appraisal cost?

Our fees vary per assignment. Some properties and assignments are more complex, therefore require more research and analysis. The best way to know what an appraisal on your property would cost is to give us a call, or to fill out the information on the Quote tab.

How do you determine market value?

There are normally three traditional approaches to value; a cost approach, a direct comparison approach, and an income approach. A value may be estimated from one or more of these approaches as deemed appropriate and then reconciled into a final indication of value.

The cost approach is based on the understanding that market participants relate value to cost. In the cost approach, the value of a property is derived by adding the estimated value of the land to the current cost of constructing a reproduction or replacement for the improvements and subtracting the depreciation amount (deterioration and obsolescence) in the structures from all causes. This approach is particularly useful in valuing new or nearly new improvements and properties that are not frequently exchanged in the market. Cost approach techniques can also be employed to derive information needed in the direct comparison and income approaches to value. This approach is based on the premise that a purchaser will not pay more than the cost to replace the property.

The direct comparison approach involves comparing the property under appraisal to other, similar properties, which have sold recently. This approach employs many appraisal principles but primarily emphasizes the principle of substitution, which states that when several similar goods (or properties) are available, the one with the lowest price attracts the greatest demand. In other words, market value is estimated by the benchmark of recent similar sales (or competing listings). The direct comparison approach's reliability is lessened when an adequate supply of comparable properties is not available.

The income approach is the present value of the right to receive future benefits. The income approach assumes that a given property is purchased for the amount of revenue it can generate.

The estimation of net income requires extensive market research. The revenue received has to be stabilized to ensure market rents are being received. An appropriate vacancy rate has to be determined, taking into consideration all forms of depreciation and obsolescence. Finally, all expenses have to be considered and deducted from the gross income to determine the net operating income (NOI). A property's net income can be capitalized into a current, lump-sum value. The NOI, therefore, capitalized into a current, lump-sum value (NOI / cap rate = market value).

The cap rate selection is based on the condition and desirability of the property and economic factors related to the property's location. A cap rate is a measure of return an investor is willing to accept, given the risk associated with the NOI the property produces. The formula for calculating a cap rate is (NOI / purchase price = cap rate). An investor will require a higher return (cap rate) for a riskier income-producing property. Inversely, an investor will require a lower return for a less risky property.

© 2021 Godfrey, Cranston & Hopson Appraisals Ltd.