The Different Report Types Used For Commercial Real Estate Appraisals

Many users of commercial real estate appraisals are confused about what to order when they need an appraisal for their commercial property. Just to let you know how it works, there are three report formats used by commercial appraisers, including the self-contained report format, the summary report format, and the restricted-use report format. These are all simply the way the opinion of value is conveyed to the client, and the differences are found in the amount of detail in each. According to the Uniform Standards of Professional Appraisal Practice, a self-contained appraisal report will “describe” the content of the appraisal throughout the report, whereas a summary appraisal “summarizes” the data. The restricted-use format simply “states” the information conveyed to the client within the report. The scope of work for all three reporting options is still the same, no matter which report is used, so the valuation is unaffected.

As an example, let’s say that three methods were used in the appraisal report to arrive at a capitalization rate for the valuation. For illustrative purposes, let’s say these methods will include the modified band of investment method, the debt coverage ratio method, and the market extraction method. Within the self-contained report, each of these methods would have a complete explanation of what they are, how they are used, how they apply to the subject property, a description of the analysis, the results of each method, and how the finalized cap rate is reconciled. In a summary appraisal, this data would be summarized to include perhaps a mentioning of each of the methods, the results for each, and a reconciled rate. However, a restricted-use appraisal report would simply state the reconciled cap rate.

Now that we understand each of the report types, how do you know which one you will need? Users of commercial real estate appraisals may only want to know the value, and not really care much about seeing a lot of detail within the report, since they are most likely well-aware of the specifics of the property and the surrounding market area. These users will typically request a restricted-use report. In fact, it is called “restricted-use” because it is intended to be written for a particular user who is familiar with the elaborate descriptions of the property that are typically found in the self-contained appraisal report.

At the other end of the spectrum, clients who are not familiar with the market for a particular property, perhaps because they live in a different region, or have never been associated with the property itself, may want to see a level C market analysis within a self-contained report. A good self-contained appraisal report will sufficiently describe the physical and economic property characteristics relevant to the assignment, and describe the information analyzed, the appraisal procedures followed, and the reasoning that supports the opinions analysis and conclusions.

In the middle of these two extremes is the summary report. This type of report still has a decent amount of detail, but the descriptions are more concise and to the point. Unlike the self-contained report, the summary report does not describe the appraisal content, but summarizes it. Many commercial appraisers would agree that the most requested type of report is the summary report, although this may not be true for every appraiser.
Given the same property, appraisers will typically charge less for a restricted-use report than a summary report, and less for a summary report than for a self-contained report. This is due to the fact that less report writing is time saved by the appraiser. However, it is important to remember that the same scope of work is undertaken in the appraisal process no matter which report-type is used, and that it’s only the amount of narrative detail conveyed to the user of the appraisal that is condensed.

One of the biggest users of commercial real estate appraisals are lenders. So, which type of report do lenders use? While many lending institutions require self-contained appraisals, others only require them for properties with estimated values of $500,000 or greater, although this amount can vary. Other lenders use only summary reports, while still other lending institutions prefer restricted-use appraisal reports for all of their appraised properties. As can be seen, there is no “right” report type for any particular type of property. Ultimately, it is up to the client as to which report type should be used, depending on their needs.