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Commercial appraisals are typically more complex than residential appraisals. Depending on property type and scope of work, deliveries range from one to two weeks. Expedited turn times require additional costs and are subject to time limitations of developing and reporting a reliable value conclusion per USPAP.
An appraisal is a professional appraiser's opinion of value. The preparation of an appraisal involves research into appropriate market areas; the assembly and analysis of information pertinent to a property; and the knowledge, experience, and professional judgment of the appraiser. Appraisals are typically required whenever real property is sold, mortgaged, taxed, insured, or developed. For example, appraisals are prepared for mortgage lending purposes, tax assessment and appeals of assessment, negotiation between buyers and sellers, government acquisition of private property for public use, business mergers or dissolutions, lease negotiations and more.
The Uniform Standards of Professional Appraisal Practice (USPAP) are the generally accepted standards for professional appraisal practice in North America. USPAP contains standards for all types of appraisal services. The Financial Institutions Reform, Recovery and Enforcement Act of 1989 recognizes USPAP as the generally accepted appraisal standards and requires USPAP compliance for appraisers in federally related transactions. State Appraiser Certification and Licensing Boards; federal, state, and local agencies, appraisal services; and appraisal trade associations require compliance with USPAP.
Prior to 2014-15 USPAP revisions there were three types of written reports; Restricted-Use, Summary and Self-Contained. USPAP now has two written report options, Appraisal Report and Restricted Appraisal Report. An Appraisal Report must summarize the appraiser's analysis and the rationale for the conclusions. A Restricted Appraisal Report might not include sufficient information for the client (no other intended users are allowed) to understand either the appraiser's analyses or rationale for the appraiser's conclusions.
The appraiser should provide objective, impartial, and unbiased opinions about valuation services of real property. Appraisers assemble data and other information regarding the specific properties, analyze and develop opinions of value. Each appraisal assignment requires an appraiser to put analytical skills into practice, exercise sound judgment and communicate the conclusions effectively.
All states require appraisers to be state licensed or certified in order to provide appraisals to federally regulated lenders. Some states require appraisers to be licensed or certified to provide appraisals for other parties as well. To become licensed or certified, one must pass an examination that is administered by your state's appraisal board. Because state requirements vary, contact your state's regulatory agency for specific requirements. The Appraiser Qualifications Board (AQB) of The Appraisal Foundation is authorized by Congress to establish the minimum requirements for Certified General Real Property Appraiser and Certified Residential Real Property Appraiser classifications, and the AQB provides recommended minimum requirements for the Licensed Real Property Appraiser and Trainee classifications.
The Appraisal Institute is a global professional association of real estate appraisers, with approximately 22,000 professionals in almost 60 countries throughout the world. Its mission is to advance professionalism and ethics, global standards, methodologies, and practices through the professional development of property economics worldwide. The Appraisal Institute advocates equal opportunity and nondiscrimination in the appraisal profession and conducts its activities in accordance with applicable federal, state and local laws. Individuals of the Appraisal Institute benefit from an array of professional education and advocacy programs, and may hold the prestigious MAI, SRPA, SRA, AI-GRS, and AI-RRS designations.
The highest and best use of a property is defined as that reasonable and most probable use that will support its highest present value. The highest and best use, or most probable use, must be legally permissible, physically possible, financially feasible, and maximally productive. The highest and best use concept is based upon traditional appraisal theory and reflects the attitudes of typical buyers and sellers who recognize that value is predicated on future benefits. This theory is based upon the wealth maximization of the owner, with consideration given to community goals. A use which does not meet the needs of the public will not meet the above highest and best use criteria.
There are three general groups of methodologies for determining value. These are usually referred to as the "three approaches to value" which are independent of one another:

Cost Approach

This approach is based upon the principle that the value of the property is significantly related to its physical characteristics, and that no one would pay more for a facility than it would cost to build a like facility in today's market on a comparable site.

Income Approach

The Income Approach is based on the premise that properties similar to the subject are income producing, and that investors purchase these properties based upon their income-producing ability. In the Income Approach, market rents for the subject property are estimated, the applicable operating expenses are deducted, and the resulting net income is capitalized into a value estimate. This method is known as Direct Capitalization.

Another method of the Income Approach is the Discounted Cash Flow Analysis. This approach follows the same methodology as the direct capitalization but projects cash flows over a typical investor holding period. This approach is particularly meaningful for properties which have multiple tenants with varying lease terms. This approach is also useful in analyzing properties which are not stabilized, or have contract rents which differ substantially from market rent.

Sales Comparison Approach

This approach is based on the principle of substitution. This principle states that no one would pay more for the subject property than the value of similar property in the market. This approach analyzes sales of comparable properties with regard to the nature and condition of each sale. Comparisons are made for varying physical characteristics.

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