Looking At The Real Estate Appraisal

  Appraiser 0058

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AN APPRAISAL OF SPECIFIC REAL ESTATE USUALLY is more dependable than a property tax assessment or a real estate agent’s opinion of value. And it is useful when establishing an asking price. However, being more dependable does not necessarily mean it is infallible. After all, an appraisal is a value estimate calculated through a generally accepted procedural methodology that in practice is partly systemic and partly reflects the skill of the particular appraiser.

Viewed in this way an appraisal report should be read thoroughly. Unfortunately, too many just look at the final value then become glassy-eyed when attempting to read the rest, either skimming over or ignoring the balance of the report which often can be a mistake.

This was clearly illustrated when the seller of a unique parcel of commercial real estate was very displeased and uncomfortable with its appraised value. Since the real estate tax bill indicated a value of $750,000 the seller felt confident the appraisal would be somewhat near that amount. But when the appraiser estimated the value as $575,000 we were contacted to review the situation as well as the appraisal report.

To be placed on the market was a one acre parcel encompassing a large old concrete structure which was rented by an entity not concerned with appearances or foot traffic. Although situated along a busy highway in a retail zone, the building’s unappealing architecture, unconventional construction and odd configuration greatly hindered any cost-effective renovation/ remodeling compatible with most commercial uses.

Analysis indicated the property’s uniqueness essentially precluded an ability to cite comparables. To compensate, the appraiser strove to meticulously detail the path followed to value. Included were a cost-approach analysis and a discussion of desirability in the market. In the end, the appraiser determined the building lacked any desirability, had no value whatsoever and should be demolished, the cost of which decreased the value of the underlying real estate.

While we concurred with a good portion of the appraiser’s reasoning, we found one important fact had been overlooked ― the building was rented and producing significant cash flow. Accordingly, the building had value under the income approach, which value the appraiser ultimately acknowledged had not been considered. When the appraisal was eventually adjusted to factor that data into its calculations the property value escalated to slightly less than $700,000, an amount agreeable to the seller.

The bottom line: Read the appraisal completely.

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Need consulting, coaching or problem troubleshooting regarding other single-family or multi-family housing issues? We’ll be pleased to help you. Visit us at the Inhouse Corporation website or contact us at inhouseco@aol.com

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Blog Terms of Use and Disclaimer: The purpose of this blog is to promote awareness and general discussion of the presented topic. Use of this blog shall be the reader’s agreement this blog is not a substitute for the advice of a qualified professional and each action that may be taken shall be under the specific guidance and oversight and/or performance of a professional qualified in the subject matter. If you have a question or want assistance with a featured or related matter please contact us at InhouseCo@aol.com (include the blog article title on the subject line). Links, references and credits in this blog are for convenience only and are not endorsements by the author or Inhouse Corporation. Statements and/or opinions of guest authors may or may not reflect those of Inhouse Corporation.

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One Response to “Looking At The Real Estate Appraisal”

  1. Arthur Falcone Says:

    Arthur Falcone

    Looking At The Real Estate Appraisal | Inhouse Corporation Insights

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