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Extraordinary Considerations When Appraising a Commercial Condominium
When appraising a commercial condominium, the appraiser has additional considerations compared to the appraisal of a non-condominium real estate property. The appraiser must consider the land ownership, type of property, the strength of the association, and what things are covered within the association fee. Properly handling these issues is essential to providing an accurate valuation of a commercial condominium.
The major consideration is that the underlying land is not owned in fee simple by the condominium owner, but is owned by the condominium association. However, when describing the property, the appraiser will usually include the Site Description in the appraisal report for informational purposes. It is inappropriate to consider land value if the appraisal is of a single commercial condominium.
When identifying comparable properties, the appraiser must consider the type of property, since retail, office and industrial uses can all have condominium-type ownership. Also, the square footage of the unit is important, since smaller condominium properties generally sell for higher unit prices, and vice versa. The general condition of the property, especially the exterior, is an important consideration, since the exterior condition is usually beyond the control of the unit owner, and a poor exterior presentation can significantly alter the value of the property, even if the condominium unit’s interior is of excellent quality and condition.
Another important aspect of the condominium ownership is the "strength" of the condominium association, which is responsible for maintaining the common areas, imposing special assessments, paying for common area utilities, enforcing rules, along with many other duties. In effect, the condominium association is a form of government that the condominium owner must comply with, or else be fined and/or liened. A poorly run association could have a significant adverse effect on the valuation of a commercial condominium.
Another major consideration when appraising commercial condominiums is which services the association fees cover. The fees could cover the cost of tenant unit utilities, common area utilities, common area maintenance, insurance, and many other things. A proper understanding of what the association fees cover and who is responsible for paying the association fee (tenant or owner) is crucial to providing an accurate Income Approach to valuation.
Other important consideration in the appraisal of commercial condominiums include the number of units leased, as opposed to owner-occupied; any current litigation associated with the property; and the number of parking spaces included with each unit. If you need a commercial condominium appraisal, it is important to select a competent appraiser who understands the intricacies of the assignment. For more explanation on appraisal methodology, visit our website at www.commercial-appraisers.com.
Commercial Real Estate Appraisal and Estate Settlement
Although estate settlement can be stressful to the relatives of the deceased, it is an important task that requires conscientious decision making throughout the process. The executor of the estate has been given the duty to fulfill the desires of the deceased in a swift and committed manner. The real estate appraiser must also perform swiftly, being sensitive to those involved that have lost a loved one. Two things that appraisers need to clearly identify with the client in an estate settlement appraisal are the intended users and the report type.
An appraisal is often used to settle an estate in order to determine the Fair Market Value of the commercial real estate assets owned by the deceased. Since the date of death precedes the date that the appraisal services are solicited, a retrospective forensic appraisal is usually performed by the appraiser. Data regarding comparable sales, comparable rents, occupancy rates, expenses, capitalization rates, etc. that occurred on or before the date of death is gathered by the appraiser, and data that occurred post-date-of-death is usually ignored.
Users of estate settlement appraisals can include receivers of the estate, lawyers, trust-administration specialists, estate facilitators, will executors, accounting professionals, court-appointed administrators, business owners, partnerships, and enrolled mediators. Due to the many possible users of an estate settlement appraisal it is critical that the appraiser works with a client to clearly identify the intended user of the appraisal, assuming the intended user or users may have unintended consequences for the appraiser. For example, the client may only represent one party in a contentious estate settlement and the client may wish to limit the appraisal’s intended user to just himself. In this situation, if the appraiser made the assumption everyone involved in the settlement was and intended user it could have serious consequences.
Additionally, it is critical that the proper report format be selected. If the report only has one intended user who has a good understanding of the property, then a Restricted-Use Report may be sufficient. However, the report will more than likely have more than one intended user that may not be knowledgeable about the subject property or surrounding market. In this case, an Appraisal Report will more than likely be the best report option (based on the new USPAP reporting options beginning in January of 2014, which will only include a Restricted-Use Report and Appraisal Report formats.) Due to the emotion surrounding an estate settlement appraisal, the appraiser must clearly identify the answer to these questions in order to not add any more stress to a difficult situation. For more explanation on appraisal methodology, visit our website at www.commercial-appraisers.com.