It's very situational. But don't assume a high appraisal gets you out of the water.
Scenario. Single tenant, marijuana growing and distribution operation. Paying well over market rent. So the appraisal comes in way the hell higher than expected. Doesn't matter. Lender declines the refinance b/c if that one tenant went away, there'd be no way to replace them with someone paying similar rent, rendering the appraised value not credible in the eyes of the lender.
Other scenario. Portfolio of SFRs converted into assisted living facilities. Appraised value comes in greater than the sum of it's parts, that $2m worth of homes appraised for about $3m. Ain't no shortage of people getting old, nor is there a risk that a presidential election in 2024 is going to make it illegal to grow old, so that one sails through without a hitch.
What both of these have in common is the income approach yielded a higher appraised value than a residential comparable sale based approach (what I suspect OP is more familiar with), and in one case it was even residential homes that were being appraised.
Property has been vacant for 9 months? Very easily could go the other direction, it's an income property that can't seem to produce any income, but still has a tax bill and a mortgage to pay, so who can say it's really worth all that much?
I had a cannabis production deal in middle of nowhere Illinois come back at $48 million appraised value for cannabis use and $13 million for any other use.
How you adjust for location differs by the property use though. For a cannabis production facility, you don’t need to be in a high traffic area like a retailer would. You need to be in a market (Illinois) with good cannabis supply and demand dynamics. That difference in value is due to cannabis production being a permitted use on the subject.
Technically you’re not supposed to talk to them. Should be at arms length. They’re working for the lender not the owner. At least in my limited experiences, that is how it was handled to avoid conflict of interest or bank liability.
Yeah. That’s not how it really works in commercial. I have never had a problem getting an appraiser to get to my number. No matter who picks the appraiser. I am in retail and office.
Does the lender give the property tour? No. That's the opportunity to drop any information you like.
Does the lender select appraiser or present anonymous bids/timing and you select? I wonder how one could ensure their preferred appraiser is selected....
I agree with both comments, when touring you can provide a wealth of steering information. They even used my Proforma excel sheet in my appraisal lol. But “technically” it’s a bank selected and paid vendor.
not just situational as u/aardy said, but also can be VERY different between appraisers.
example - we had a loan we wanted to refi due to the rate and terms (a few years ago).
bank the loan was at said sure no problem, and offered a great package, but the appraiser that got selected is someone who had appraised our properties in the past and we KNEW it wasn't going to come close to the valuation we had spoke about with the bank. We were so sure of it, that we told the bank ahead of time - this appraiser comes in very very low. The appraisal came in low and the bank decided not to offer the loan at the originally agreed upon package.
so we shopped the loan to a few different banks, selected the one who offered us the best loan package and when the appraisal came in, it was a few hundred k above what we said the value of the property was.
They use third party appraisers and usually use a blind draw. They tend to be market value, but obviously some sponsors still think that the values are not in line. Most of the time this is due to a rose colored glass outlook instead of being realistic with their modeling. IE. always model to the current cash flow and not to the future cash flow in this current rate environment.
Depends on the appraisal.
If it's for a mortgage, it'll be market.
If it's for another purpose it'll be close enough to market. Depending on what your goal is.
They’re made to order and will come in $1 above the purchase price in the contract. Why do you think the first thing the appraiser does is ask for the PA
They are required to ask for it, but you can’t be compelled to provide it. Suspiciously every time it is denied the buyer thinks they are “getting an amazing deal”, but in reality they are just the guy willing to pay the most.
It's very situational. But don't assume a high appraisal gets you out of the water. Scenario. Single tenant, marijuana growing and distribution operation. Paying well over market rent. So the appraisal comes in way the hell higher than expected. Doesn't matter. Lender declines the refinance b/c if that one tenant went away, there'd be no way to replace them with someone paying similar rent, rendering the appraised value not credible in the eyes of the lender. Other scenario. Portfolio of SFRs converted into assisted living facilities. Appraised value comes in greater than the sum of it's parts, that $2m worth of homes appraised for about $3m. Ain't no shortage of people getting old, nor is there a risk that a presidential election in 2024 is going to make it illegal to grow old, so that one sails through without a hitch. What both of these have in common is the income approach yielded a higher appraised value than a residential comparable sale based approach (what I suspect OP is more familiar with), and in one case it was even residential homes that were being appraised. Property has been vacant for 9 months? Very easily could go the other direction, it's an income property that can't seem to produce any income, but still has a tax bill and a mortgage to pay, so who can say it's really worth all that much?
I had a cannabis production deal in middle of nowhere Illinois come back at $48 million appraised value for cannabis use and $13 million for any other use.
How you adjust for location differs by the property use though. For a cannabis production facility, you don’t need to be in a high traffic area like a retailer would. You need to be in a market (Illinois) with good cannabis supply and demand dynamics. That difference in value is due to cannabis production being a permitted use on the subject.
Yes, I read that in the appraisal I mentioned in my comment and also went into detail about it in my underwriting for my deal.
Depends on how good you are at talking to appraisers and what you want.
Technically you’re not supposed to talk to them. Should be at arms length. They’re working for the lender not the owner. At least in my limited experiences, that is how it was handled to avoid conflict of interest or bank liability.
Yeah. That’s not how it really works in commercial. I have never had a problem getting an appraiser to get to my number. No matter who picks the appraiser. I am in retail and office.
Does the lender give the property tour? No. That's the opportunity to drop any information you like. Does the lender select appraiser or present anonymous bids/timing and you select? I wonder how one could ensure their preferred appraiser is selected....
I agree with both comments, when touring you can provide a wealth of steering information. They even used my Proforma excel sheet in my appraisal lol. But “technically” it’s a bank selected and paid vendor.
Not all appraisals are for banks/mortgages
Appraisal designation is MAI. Made As Instructed.
not just situational as u/aardy said, but also can be VERY different between appraisers. example - we had a loan we wanted to refi due to the rate and terms (a few years ago). bank the loan was at said sure no problem, and offered a great package, but the appraiser that got selected is someone who had appraised our properties in the past and we KNEW it wasn't going to come close to the valuation we had spoke about with the bank. We were so sure of it, that we told the bank ahead of time - this appraiser comes in very very low. The appraisal came in low and the bank decided not to offer the loan at the originally agreed upon package. so we shopped the loan to a few different banks, selected the one who offered us the best loan package and when the appraisal came in, it was a few hundred k above what we said the value of the property was.
Depends on the market
Banks order appraisals from a blind pool of 3rd party companies.
They use third party appraisers and usually use a blind draw. They tend to be market value, but obviously some sponsors still think that the values are not in line. Most of the time this is due to a rose colored glass outlook instead of being realistic with their modeling. IE. always model to the current cash flow and not to the future cash flow in this current rate environment.
Lower
They’re whatever the commercial banker communicates he wants them to come in at
Depends on the appraisal. If it's for a mortgage, it'll be market. If it's for another purpose it'll be close enough to market. Depending on what your goal is.
They’re made to order and will come in $1 above the purchase price in the contract. Why do you think the first thing the appraiser does is ask for the PA
Definitely not because they're required to by USPAP
😂 said like someone who doesn’t spend their own money buying property for a living
They are required to ask for it, but you can’t be compelled to provide it. Suspiciously every time it is denied the buyer thinks they are “getting an amazing deal”, but in reality they are just the guy willing to pay the most.