Appraisals & Evaluations
A restricted appraisal report is for the client only and at a minimum, states certain info (outline format) while a full report summarizes information in a narrative format. A restricted report can be expanded to meet the client/lenders needs and be as thorough as the full report with a lower fee than a full appraisal report. Do you need all 3 value approaches (Cost, Income & Sales Comparison)? Do you need an in depth market and community analysis? If not then consider a lower fee restricted report.
An evaluation is an acceptable alternative to an appraisal per the Interagency Appraisal and Evaluation Guidelines dated Dec. 2, 2010. The Interagency states "An evaluation can contain as much or more information than a restricted appraisal report. An evaluation can be used in lieu of an appraisal for transactions that qualify for certain exemptions where a transaction value is equal to, or less than, the appraisal threshold of $250,000 or is a business loan with a transaction value equal to, or less than, the business loan threshold of $1 million and is not dependent on the sale of, rental income derived from, real estate as the primary source of repayment."
A broker price opinion determines price and not value. This is usually a 2 page form with a brief description of the subject and an analysis grid of three comparable sales plus photos and maps. Evaluations
Purchasing comparable sales is a way to support your internal evaluations. Most non-residential sales are private and not on multiple listing services (MLS). We can provide commercial-industrial sales from 10 different sources to find the most suitable comparables.
An evaluation is defined in the Interagency Appraisal and Evaluation Guidelines dated December 2, 2010 as “A valuation permitted by the Agencies’ appraisal regulations for transactions that qualify for the appraisal threshold exemption, business loan exemption, or subsequent transaction exemption.” An evaluation can be used in lieu of an appraisal for transactions that qualify for certain exemptions. These exemptions include a transaction that:
- Has a transaction value equal to or less than the appraisal threshold of $250,000;
- Is a business loan with a transaction value equal to or less than the business loan threshold of $1 million, and is not dependent on the sale of, rental income derived from, real estate as the primary source of repayment;
- Involves an existing extension of credit at the lending institution, provided that:
- There has been no obvious and material change in the market conditions or physical aspects of the property that threaten the adequacy of the institution’s real estate collateral after the transaction, even with the advancement of new monies; or
- There is no advancement of new monies other than funds necessary to cover reasonable closing costs.
The Evaluation Content
The content of an evaluation is stated by the Interagency Appraisal and Evaluation Guidelines as “An evaluation should contain sufficient information detailing the analysis, assumptions, and conclusions to support the credit decision.” The evaluation, should at a minimum:
- Identify the location of the property.
- Provide a description of the property and its current and projected use.
- Provide an estimated of the property’s market value in its actual physical condition, use and zoning designation as of the effective date of the evaluation (that is, the date that the analysis was completed), with any limiting conditions.
- Describe the method(s) used to confirm the property’s actual physical condition and the extent to which an inspection was performed.
- Describe the analysis that was performed and the supporting information that was used in valuing the property.
- Describe the supplemental information that was considered when using an analytical method or technological tool.
- Indicate all source(s) of information used in the analysis, as applicable, to value the property such as external data sources, property-specific data, evidence of a property inspection, photos of the property, description of the neighborhood, local market conditions.
- Include information on the preparer or evaluator.
Appraisal Report Comparison
The major differences between the full appraisal report and the restricted report are highlighted in yellow.