Top Appraisal Tips

These 5 steps help streamline the appraisal process.

By Brian Iannarone

Appraisals rarely make or break commercial real estate deals, but they can delay them -- much to the consternation of brokers waiting on commission checks. Often the pr oblem is due to the lack or unavailability of critical pr operty information. However, a little front-end teamwork between brokers, owners, and buyers can streamline the entire appraisal process. In many instances, the broker is the quarterback that carries the deal into the end zone.

Be Prepared
Many times buyer/borrowers don't realize what information is critical to the ap pr aisal pr ocess, and therefore, they aren't well equipped to provide it. A skilled broker can step in and play this pivotal role. While it does take time and perhaps a little money, the costs are minor compared to a purchaser walking away from a deal at this stage or delaying a closing.

The best game plan to pr event sur pr ises, such as inaccurate ap pr aisals, is thorough pr eparation. When the ap pr aiser sets the property inspection date, the broker and owner should make certain that the necessary information is available. The information that ap pr aisers request most often is similar to what lenders require for their due diligence processes. Therefore, brokers should readily pr ovide extra copies of critical documents to save time and speed the pr ocess.

Brokers who follow these five steps can assist appraisers in preparing their reports. Be certain to customize your own checklists to ensure each area is covered appropriate to your property and market.

1. Provide Property Information

Surveys, site plans, building plans, and other written descriptive information help ap pr aisers accurately assess a pr operty. Provide data regarding easements, wetlands, or other conditions, such as the need for earthquake or flood insurance. If the pr operty is not yet constructed, provide approval documents, cost information, building and site plans, and the project's timing.

2. Share Historical Data

If the pr operty is under contract, provide a copy of the contract to the appraiser. If the purchaser plans to renovate the property, provide a description and costs. Cost information also is important for recent construction.

If the current owner made improvements to the property, such as a new roof or ventilation system, provide costs and improvement dates.

3. Disclose Lease Documents

Owners of leased properties should provide copies of the current leases as well as lease summaries if available. Appraisers usually can determine basic terms, such as start dates and base rents. However, determining expenses and who pays for what may be less clear. For instance, if a tenant is responsible for expenses over the base year, inform the ap pr aiser of base amounts and what the tenant historically has been charged. Initial clarification of these and other lease terms, such as renewal clauses, saves time and additional work in the end.

4. Explain Expenses

Historical expense information for income- producing pr operty is invaluable. At minimum, owners should provide three years' worth of records. Accountant- prepared statements are the most effective documents, since tax return information can be difficult to decipher. Brokers or owners should explain unusual and one-time expenses, such as a large repair, so that the appraiser doesn't misinterpret expense information.

5. Distribute Market-Related Material

Brokers often possess specific market information that is difficult for appraisers to obtain. Recent sales, properties under contract or listed for sale, or comparable rents can assist ap pr aisers in reaching appropriate valuations. Specific circumstances often come into play during transactions. For instance, the property seller/owner may be under duress to make a deal, resulting in a low sales price or low rents. Discussing such circumstances upfront can clarify critical details throughout the process.

The cost of assisting the appraiser might seem like a burden to some brokers and owners, but it can save all parties unnecessary frustration in the end. The overall results not only assist brokers, sellers, and buyers, but also improve the entire commercial real estate profession as more accurate appraisals help to ensure better quality loans.

Brian Iannarone, CCIM, MAI, is senior vice pr esident and manager of real estate valuation services at Wachovia Bank in Union , N.J. Contact him at (908) 624-2854 or brian.iannarone@wachovia.com.

Appraisal Checklist

Streamline the appraisal process by providing the following.

Property Information•  Surveys
•  Site and building plans
•  Easement data
•  Insurance data

Historical Data
•  Contracts
•  Renovation descriptions
•  Recent improvement costs

Leasing History
•  Lease copies and summaries
•  Base rents
• Tenant expenses
• Unusual lease terms

Expenses
•  Recent expense analyses (past three years)
•  Large, unusual, or one-time expenses

Market Data
•  Recent comparable sales
•  Properties currently under contract
• Properties currently listed for sale or rent
• Comparable rents