Posted on March 29, 2023
How to Choose a Commercial Appraisal Company in 2023
When it comes to buying, selling, or leasing commercial property, it’s in your best interest to have an accurate understanding of the property’s value before closing the deal. Otherwise, you face a higher risk of overpaying or underselling.
This is where a reputable commercial appraisal company can be extremely helpful. By analyzing current market trends, property characteristics, income potential, and many other factors, they work with you, the buyer or seller, to ensure you receive fair market value for your commercial real estate (CRE).
Although you can expect to receive a similar set of deliverables from most property valuation firms, some go above and beyond expectations to help you maximize your investment or return. With so many prospective companies to choose from in 2023, how do you know which option is best for you? This article, crafted by the Research Team at LPA, explores the primary factors you should consider — and red flags to avoid — when searching for the right commercial appraisal company.
Understanding Commercial Appraisal Services
Property appraisals provide an independent and unbiased opinion on the value of a property. However, a commercial property appraisal results from a very complex and subjective process. Providing an accurate assessment of a commercial property’s value requires extensive experience, resources, and market data.
Due to significant variances in the type, size, and income potential of CRE assets, many factors can and do impact property values, leaving plenty of room for human error. Specifically, in land deals that often exceed 7 or 8 figures, the accuracy of this information becomes invaluable to a buyer or seller, as the property’s appraised value could result in a net cost or gain in the millions of dollars.
A professional and experienced CRE appraisal company, like LPA, will have a refined set of tools, processes, and resources to provide a comprehensive and in-depth analysis of any given commercial property — its characteristics, the surrounding neighborhood, the local market, comparable sales, cost and income potential, assumptions and limitations, and more — with a high degree of precision.
Therefore, selecting the right commercial appraisal company is essential to ensuring a smooth and successful transaction.
Factors to Consider When Selecting a Commercial Appraisal Company
Most property appraisal companies offer a similar range of services and capabilities. However, the level of expertise, attention to detail, timeliness, and quality of service can vary drastically from firm to firm. During your search, consider the following important factors.
Experience Appraising Similar Property Types
It should go without saying, but the right commercial appraisal company for you is most likely one with extensive experience valuing similar property types and a proven track record of providing high-quality and timely services.
While most CRE valuation companies follow a standard appraisal process, an experienced firm like LPA will have appraised hundreds, if not thousands, of properties and is more likely to have encountered a comprehensive range of relevant scenarios. Plus, seasoned appraisers familiar with the nuances of different commercial properties are more capable of developing methodologies that deliver consistent and reliable valuations.
Simply put: nothing can replace experience. Finding a commercial appraisal company with a history of success appraising similar properties can help ensure the accuracy and dependability of your specific valuation.
Strong References, a Good Reputation, and Accolades
Due diligence is also critical when selecting a commercial appraisal firm. One of the more effective vetting tactics is to request a list of references.
Former and current clientele will be able to provide unique, first-hand accounts of the appraisal providers:
- Strengths and weaknesses.
- Customer support and service.
- The level of detail in and overall quality of their reports.
- Their reliability and ability to meet deadlines.
On-time delivery is a crucial component of the appraisal process. The right commercial appraiser will meet their deadlines, giving you ample opportunity to review all documentation, request clarifications and changes (if needed), and submit everything required to make your closing date.
For some, quality of service may not be the only deciding factor when it comes to selecting an appraisal firm. Look also for companies that have earned a positive reputation within their local markets. Those that are actively involved in their communities, provide resources and career opportunities for students, employ appraisers who serve as board members for relevant institutions, and regularly receive industry-recognized accolades should be held in high regard. A commitment to business beyond profit may provide insight into how the appraisal firm operates and the experience a prospective client can expect to have with them.
Licenses and Additional Accreditations
While all commercial appraisers in Texas are required to have a state-authorized appraisal license, additional accreditations can demonstrate credibility and competency. Appraisers who have obtained specialized certifications possess in-depth knowledge of specific property types and appraisal methodologies.
For example, an appraiser who specializes in hotel valuation may obtain the Certified Hotel Asset Manager (CHAM) accreditation, which demonstrates a deep understanding of the hospitality industry and the complex nature of hotel, motel, bed and breakfast, resort, etc. valuations. Similarly, an appraiser who has earned the Counselor of Real Estate (CRE) designation has proven expertise in a broad range of real estate topics and is a recognized thought leader in the industry.
In addition to demonstrating expertise, accreditations, and licenses with a designation from the Appraisal Institute, such as the MAI (Member of the Appraisal Institute), or from the American Society of Appraisers, such as the ASA (Accredited Senior Appraiser), are recognized by bankers, legal professionals, insurance companies, lenders, brokers, investors, and advisors. To earn these credentials, appraisers must meet rigorous education and experience requirements.
These prestigious accreditations reveal a firm’s dedication to accurate, reliable valuations. They can also be a strong signal of the quality of service a commercial appraisal company can and does provide its clients.
Quality of Service
In the realm of commercial property appraisal, quality of service is synonymous with the accuracy and timely delivery of the written appraisal (or valuation) report. However, the client experience includes much more than these end results. Although an experienced commercial valuation firm should follow a refined and reliable appraisal process, several other factors can impact the customer experience.
A trustworthy appraisal company is one that:
- Ensures the valuation is tested and verified using comprehensive and rigorous quality control.
- Prevents lapses in communication and meets all deadlines via professional-grade responsiveness and punctuality.
- Is transparent and honest about the appraisal process, its pricing and fee structure, and each appraiser’s qualifications.
Admittedly, service quality can be more challenging to gauge prior to an engagement. Nevertheless, you should be able to pick up on some of these cues during your initial conversations with a commercial appraisal provider. Any provided references can also speak to their experience working with the appraisal firm you’re considering hiring.
Cost of Services
Cost is often the most influential factor in any transaction or engagement, but the lowest price does not necessarily equate to the best value. While it can be tempting to go with the most affordable option, it’s crucial to consider the appraiser’s credentials and the quality of service they provide.
An estimate that comes in lower than expected can even be a red flag. It could indicate that the appraiser lacks experience valuating properties similar to yours, which could lead to a less accurate valuation or costly mistakes down the line. Conversely, the priciest firm does not necessarily offer the best service. They may simply be accustomed to performing valuation work — such as appraising multi-property, multimillion-dollar, or quick-turnaround projects — that demands a premium.
One approach to finding the right balance between cost and value is to choose a firm that offers transparent and competitive pricing. An appraisal company that is upfront about its fee structure and can provide a detailed breakdown of its costs can better help clients understand what they’re paying for and make a more informed purchasing decision.
Bottom line: it’s always in your best interest to have visibility into an appraisal firm’s pricing model, as this is the best way to ensure you’re paying fair market value for its services.
Communication and Responsiveness
Clear communication and responsiveness are vital for any successful business transaction, and the same is true for commercial real estate appraisals. A reputable CRE valuation firm prioritizes clear and effective communication with its clients from the initial consultation to the final report delivery. They are also responsive to all inquiries and provide regular updates throughout the appraisal process.
Although an appraisal firm’s commitment to clear and open communication can be validated through references and client testimonials, not everyone adheres to the same communication standards. Engaging with a commercial appraisal provider frequently during initial conversations can shed some light on how they operate once they earn your business.
The time it takes to appraise a commercial property and produce a final report can vary greatly from property to property. Many factors, including the property’s size, scope, and/or complexity, the commercial appraisal company’s workload, the availability of data, and the type of valuation report requested can all impact turnaround times.
However, most appraisals must be completed within a specific timeframe, particularly when properties are being sold or refinanced. A delay or setback in the appraisal process can lead to negative consequences, such as missed opportunities or a loss in potential revenue. The commercial appraisal company you select should have a proven ability to deliver its appraisal reports on time.
For example, here at Lowery Property Advisors (LPA), we stake our reputation on 100% on-time delivery. We’re proud to guarantee timeliness, but very few — if any — firms can do the same.
What to Avoid When Searching for a Commercial Appraisal Company
While there are several factors that you should strongly consider when searching for and selecting a commercial appraisal company, there are also a handful of red flags you should beware.
Lack of Transparency
If a commercial appraisal company is cryptic about its process, fees, or any other pertinent information, it could be a sign they’re withholding something or misleading you. Clients should be wary of firms that are not forthcoming about their methodology, pricing, or qualifications.
Suppose a firm is hesitant or unwilling to provide details on how it arrived at a property’s value. That could indicate that the company is not using appropriate appraisal methods or that its appraisers simply lack the experience and expertise necessary to provide a reliable estimate.
Lack of Experience
The commercial appraisal firm you choose should offer property-type expertise that’s as broad as it is deep. Its appraisers should also be licensed and qualified to appraise your specific property. A lack of either is a significant red flag, but it can sometimes take some digging to uncover.
While a smaller and less experienced firm may be able to offer clients a more hands-on approach, larger and more complex properties can often present challenges they are incapable of overcoming. Inexperience in appraising these advanced property types can ultimately lead to an inaccurate valuation or a delayed appraisal report, both of which could impact your bottom line. When in doubt, go with a firm that has a proven track record of success.
Conflict of Interest
A property appraisal is an opinion of value. But that opinion is intended to be rooted in hard facts. Ensuring that your appraisal is independently produced and free of bias will ultimately result in a seamless transaction with no surprises down the road.
While not necessarily an indicator of service quality, it’s in your best interest to avoid any conflicts of interest. In commercial real estate, a conflict of interest could come in many forms. Anyone with a financial stake in the property or a pre-existing relationship with the owner or buyer should not be appraising the property. The major risk here is that the appraiser, acting out of self-interest, might artificially inflate or deflate for property’s value. For example, a family member who is also an appraiser could undervalue the property so the buyer can qualify for a more favorable loan.
At LPA, we believe the best way to support our client’s success is with principle-centered service. Our appraisers make honesty, sincerity, transparency, and trustworthiness the pillars of every commercial real estate appraisal they write and every relationship they forge. They also focus exclusively on valuation services. Unlike some firms, we do not offer brokerage services, thus eliminating many potential conflicts of interest.
Inadequate Resources or Technology
A lack of resources or inadequate technology can be a major red flag when selecting a commercial appraisal company. Your commercial appraisal provider should invest in the tools and technology needed to provide high-quality property valuations.
For example, if a company is relying on manual data entry or deprecated software, it can lead to inaccuracies in the appraisal report and longer turnaround times. Additionally, a lack of access to up-to-date data sources (such as Costar, MLS, and Loopnet) and analytics tools can result in an incomplete or flawed appraisal report containing no references to recent or similar transactions.
At LPA, we leverage leading technology, including our own proprietary software, to collect the largest possible pool of market data and take a deeper dive into it. Moreover, our appraisers and dedicated researchers are at the forefront of utilizing and optimizing innovative tools and approaches to valuation. We even offer incentives to team members who have ideas to streamline and perfect our already efficient operations.
Finally, inadequate technology can also result in lapses in transparency and communication. A reputable appraisal firm will have systems in place to provide regular updates and status reports to its clients throughout the appraisal process.
Unreasonably Low Pricing
The old adage “if it’s too good to be true…” certainly applies to commercial real estate appraisals. If a firm’s price point is unreasonably low, that can be a major red flag.
Of course, shopping around on the lower end of the cost spectrum is perfectly acceptable. However, if an appraisal firm offers products and services well below its competitors, it could indicate they lack the experience, qualifications, or resources to provide a reasonable opinion of value.
Important Questions to Ask a Commercial Appraisal Company
Now that we’ve reviewed the top factors and red flags to consider when researching commercial appraisal companies, here are some important questions to ask during the selection process.
Which commercial property types does the firm specialize in appraising?
- The answer to this question will help you gauge the firm’s knowledge of and experience in appraising properties similar to yours. If the appraisal firm is unfamiliar or has limited experience with relevant property types, they may not be able to provide the most accurate valuation of your property.
How long have they been in business?
- A long tenure is often a strong indicator of the firm’s understanding of the local market, the number of appraisals they have produced, the efficiency of its processes, and its reputation for proving quality service.
Can they describe their process for conducting a commercial appraisal?
- Asking this question should give you a better understanding of what the firm can do for you. Just as importantly, it can provide some additional insight into the appraisal provider’s communication practices and commitment to transparency.
Can they provide references or customer testimonials?
- Contacting references creates opportunities to learn more about how the firm serves its clients.
What is their turnaround time for appraisals?
- As noted, turnaround times can vary drastically depending on the firm’s current workload, the availability of resources, the size/complexity of the property, and the reporting product (e.g., evaluation, appraisal report, feasibility analysis, or restricted report appraisal) requested. But asking this question upfront can give you a general idea of how quickly you can expect to receive your appraisal. You may also want to follow up with a question about how the firm handles any missed deadlines.
What is their fee structure and how do they bill for services?
- You’ll want to know what you’re paying for and eliminate the possibility of any surprise charges down the road.
Can they provide a sample appraisal report?
- Sample appraisal reports can provide insights into the firm’s experience using various valuation methodologies. Additionally, sample reports will provide insights into how user-friendly — and useful — the firm’s reports are.
We hope this guide has equipped you with the information and advice you need to make an informed decision in your search for the right commercial appraisal company. By taking the time to analyze and evaluate your options, you can find a firm that fits your needs and exceeds your expectations.
At Lowery Property Advisors (LPA), we offer more than market-leading expertise in all property types and CRE asset classes, including those niches many other valuation firms don’t occupy. We build long-lasting, consultative relationships with our clients in Texas, the Southwest, and beyond. Our commitment to providing exceptional customer service and 100% on-time delivery has helped us become the fastest growing independent commercial appraisal firm in our region. We would love the opportunity to work with you and bid your next project. Contact us today to learn more about our commercial appraisal services.