Commercial Real Estate Appraiser: What Does The Appraiser Exactly Do?

Real estate is one of those fields of work where your success solely depends on your abilities. You can work in real estate and make decent money, but you can also make a lot of it.

The best case in this question is the president, Donald Trump. He made millions on real estate – and he’s not alone in that.

We know what real estate agents and the brokerage do, but what about real estate appraisers? What is their field of expertise?

To find out the answer to this question, and so many more, continue reading!

What Does A Commercial Real Estate Appraiser Do?

A commercial real estate appraiser has a job description of estimating the value of commercial places and properties. The responsibilities of a real estate appraiser are the inspection of a commercial building and assigning the value to it.

When people think of property appraisal, they usually think of residential appraisals. The reason behind that is because most people never come in contact with commercial appraisals. Most people only know about residential appraisals – when they’re buying or selling a home.

The commercial appraisers are not as popular as residential appraisers, because they’re not as needed as the first kind. However, the appraisal is built on the same rules for both types of property – commercial and residential. 

The value of a commercial property is based on a few different factors. The value is based on the property size, the features, and the cost of similar properties in the area.

Commercial property includes offices, industrial buildings, hotels, shopping malls, and land. Appraising the value of different properties depends on the most on the level of expertise of the appraiser. 

The appraisal can be done by the appraiser for many reasons, and it’s usually based on the field of expertise. Most commercial real estate appraisers only work with one field alone, but some dabble in different fields. The most lucrative fields would be for tax purposes, estimating the value for buyers, sellers, or investors.

Insurance companies have commercial real estate appraisers work for them on estimating value. The estimated value of a commercial property is used to estimate how high the insurance policy is going to be.

There are two different ways to work as a real estate appraiser. You can work with an appraisal company as a member of the staff or an independent commercial appraiser.

An independent real estate appraiser charges a fee for each appraisal they do. On the other hand, if you work as a member of the staff, you usually have a fixed salary.

In our humble opinion, you can earn much more money if you work independently. However, you have to find clients on your own and work a lot harder, but in the end, it pays off!

When you decide to work as a commercial real estate appraiser, you will likely start as a trainee at an appraisal company. You will be a trainee until you complete all necessities required to receive a license.

Three Approaches To Commercial Appraisal

There are three different types of approaches to commercial appraisal. They are the sales comparison approach, the income approach, and the cost approach. Let’s see the distinctions:

The Sales Comparison Approach

  • The sales comparison approach is maybe the most popular approach of them all. This method is done in a way that the property up for appraisal is compared to similar properties. Similar properties have a similar size, they’re in the same area, and they’re the same type of property.
  • This is usually the preferred method of commercial real estate appraisal. The only flaw of this approach? Sometimes, there isn’t enough data to estimate value.

The Income Approach

  • The income approach takes into account the income potential of the property. It’s solely based on the belief that an investor will buy the property because the property seems attractive. Also, the property may make more money, making it a good deal. This belief is based on the expected income stream.
  • The commercial real estate appraisers will calculate the net operating income of the property. They will review and revise documents like data from operating the property. Furthermore, they take into account the data of similar properties and information from the commercial real estate market.
  • The most popular way to conduct the income approach is the method of direct capitalization. This method is carried out by capitalizing on an income stream. As some would say, dividing the net operating income by a capitalization rate. Hereby, the appraiser will get the estimated value of the property.
  • A capitalization rate can be calculated by dividing the net operating income by the sale price of a property. This is a fairly common approach to commercial appraisal. It’s usually requested by investors who are looking into a certain commercial property.

The Cost Approach

  • The cost approach is a type of approach that’s used when there isn’t enough data to conduct any other approach.
  • This method is carried out by estimating the value on the cost of the build. Building the property adds a certain value to the land, and many investors associate the cost with the value the property later has.
  • A good investor would never build a property that would turn out to have a value less than the building cost. The building cost is also known as a replacement cost.
  • The commercial appraiser will take into account all the building costs. Then, the appraiser will take some factors into account that will lessen the value of the property like:
    • Physical flaws
    • Issues with functionality
    • The situation on the current real estate market

Why Would You Need A Commercial Real Estate Appraiser?

Rdl Commercial Real Estate Appraiser

A commercial real estate appraiser uses these three approaches and the data available to estimate the property value. The most popular request for a commercial appraisal is for a loan.

When asking for a loan for a new commercial property, the bank will request an official appraisal report. On the other hand, there are multiple other reasons why would someone request a commercial real estate appraisal.

The most common reasons are:

  • For determining the level of taxation,
  • For eminent domain purposes,
  • For dividing assets for example, during a divorce. 

The process of an appraisal starts by estimating the size of the project and the much needed information for making an estimated value.

The next step is the inspection of the property, to gain a better idea of the quality of the build and the current condition. Lastly, the commercial real estate appraiser decides on one or more methods that suit the information best. Then, the value is estimated and stated in an official report.

Can real estate agents work from home – read our article to find out!

Types Of Appraisal Reports

  • The commercial appraisal report is going to cover a lot of crucial factors involved. The factors here can involve a comparison to the other properties in the area, among other things like an estimated value, a description of the property and the potential risks.
  • Depending on the needs of the client, the report will be different for every need. There are three possible formats, so let’s cover them all.
Self-contained reportsFully describes the information and analysesBroad range of informationMost expensive
Summary reportsSummary of data and analyses usedAdditional data is outside of the report
Restricted-use reportOnly states the conclusionShortest type of report and the cheapes

Can Anyone Become A Commercial Real Estate Appraiser?

Well, to be honest – no. Some requirements are set by the Appraisal Foundation, but they can vary from state to state.

The Appraisal Foundation set minimal requirements for getting a license for commercial appraisal. They are:

  • A bachelor’s degree
  • Completed 300 hours of coursework
  • 3,000 hours of work experience with a general certified appraiser

The whole process of becoming licensed takes somewhere around three years. The challenge many people face is finding a general certified appraiser that is willing to train you.

That’s where the Appraisal Institute, the largest appraiser association in the world, comes in. They can help you when picking out a mentor or even offer one to you. It’s a great idea to get involved in it even if you’re already licensed for networking purposes and such. It has an office in every state, so you can get a high-quality appraiser education anywhere in the US.

When you’re training to be a commercial appraiser, you will do a variety of appraisal work. Every assignment and project is different – you will appraise many different types of commercial property. The three-year mark may seem far, but every licensed appraiser will tell you it goes by in a second.

Commercial Real Estate Appraiser – Conclusion

To conclude, a commercial real estate appraiser calculates the estimated value of a commercial property. An appraiser can work as a staff member or as an independent contractor.

Furthermore, there are three types of reports. How thorough they are depends on the price and their purpose.

Pretty much anyone can become a commercial appraiser. All you need to do is fulfill a few requirements and find a mentor willing to teach you the ways of the job!