Appraisal Cost Options: Introduction
When purchasing a retail property in Miami, leasing an office space in Tampa, using a warehouse as collateral for a loan in Fort Lauderdale, or developing a restaurant in Orlando, understanding the value of your investment is paramount. That's where commercial real estate appraisals come into play.
In Florida, like many places, there are different types of appraisal reports to serve different needs. There are only two defined for Florida State Certified General Real Estate Appraisers:
the "Appraisal Report" and the "Restricted Appraisal Report," which are legal terms defined by Federal and State agencies to protect the public interest. Here, we will delve into the nuances between these two reports to help you make informed decisions.
What is an Appraisal Report?
An Appraisal Report is a detailed and comprehensive document that provides an opinion of value based on a thorough analysis of the property, market trends, and comparable sales. Here are its distinctive features:
Detailed Information: It offers a complete disclosure of the information analyzed, the appraiser's procedures, and the reasoning that supports the analysis, opinions, and conclusions.
Use of Three Approaches: Typically, it considers the three main approaches to value - the Cost Approach, Sales Comparison Approach, and Income Approach.
Identifies the Intended Users: An appraisal requires the intended users to be identified specifically. The Appraisal Report can be used and relied upon by one or more Intended Users, such as only the client, third-party lenders, or any other intended users identified when the report is ordered.
Identifies the Purpose and Use of the Report: It serves a wide range of purposes from lending decisions, acquisition and disposition strategies to litigation support and more. The appraiser determines the scope of the appraisal based on the intended use and users.
What is a Restricted Appraisal Report?
The Restricted Appraisal Report is more concise and provides a limited amount of detail about the appraiser's data, procedures, and reasoning. Its key characteristics include:
Less Detailed: This report provides a lesser degree of detail than an Appraisal Report. However, it still communicates the appraiser's conclusions adequately.
Restricted Intended Users: The Restricted Appraisal Report is intended to be used only by the client and not by any other party. If a third party needs to rely on the appraisal to make a loan, present information to the courts, or support tax filings, the Restricted Appraisal Report might not be acceptable. It is rarely suitable unless the third party has a first-hand understanding of the lot, building, and market conditions.
Purpose and Use: Given its restricted nature, this report is often used for internal decision-making purposes where a comprehensive report is not necessary.
Why Choose One Over the Other?
Complexity of the Assignment: For a straightforward property type and valuation situation, a Restricted Appraisal Report might suffice. However, for a complex property or scenario, a comprehensive Appraisal Report is necessary to convey complicated analysis and support.
Intended Audience: If you are sharing the report with external parties, such as lenders, the IRS, or courts, a detailed Appraisal Report is typically required.
Cost Considerations: Since Restricted Appraisal Reports require less detail and analysis, they often come at a lower cost.
Time Constraints: If time is a limiting factor, a Restricted Appraisal Report can be quicker to produce.
Appraisal Cost Options: Conclusion
When deciding between an Appraisal Report and a Restricted Appraisal Report in Florida's commercial real estate landscape, it's vital to consider the report's purpose, the audience, and the level of detail required. Always consult with a certified appraiser who is familiar with Florida’s market dynamics to ensure that you get a report tailored to your specific needs.