Below you’ll find answers to the questions we get asked the most about real estate appraisals.
Frequently Asked Questions
A commercial real estate appraisal, which may also be called a property valuation, is an opinion on the market value of a property, such as a multifamily, retail, industrial, office, churches and other special uses.
Appraisals are used by different individuals in the commercial real estate industry for a variety of purposes. A lender will want to know the value of a property to determine the financing they can provide. An attorney will use valuations to assist their clients with zoning, property assessment and tax analysis, and partnership issues. Private investors will turn to an appraiser to help with things such as market rent analysis, capital reserves budgeting, and allocation analysis.
There is a wide type of commercial projects each with unique features. Drilling down further, each property has its own singular characteristics, so these types of appraisals can take some time. With the necessary documentation in place at the start of the process, Rittenhouse Appraisals is able to deliver most appraisals in 14 business days.
Most states require appraisers to be state licensed or certified. This means they meet a set of education qualifications and certification requirements. In Pennsylvania the State Board of Certified Real Estate Appraisers regulates the real estate appraisers and assessors. The governing body in NJ is the New Jersey State Board of Real Estate Appraisers.
Beyond this, appraisers can become designated members of the Appraisal Institute, meaning they have furthered their education and experience, as well as committed to obeying strict standards and a code of professional ethics. Individuals with this designation who work in commercial real estate are permitted to use MAI with their name.
The Appraisal Institute’s “The Appraisal of Real Estate 15th Edition” defines depreciation as “The physical, functional, and external impairments observed in buildings as they age result in depreciation, which is defined as a loss in the value of an improvement from any cause.”
Real estate appraisers estimate three main types of depreciation – physical, functional, and external or economic.
Physical depreciation is the loss in value caused by wear and tear, exposure to elements, and deferred maintenance or negligent care. Examples of physical depreciation can range from outdated HVAC systems to worn-out flooring. This type of deterioration can be curable or incurable.
Functional depreciation is the loss in value when an element, or elements, of the building have become outdated or not useful, and are no longer in line with market expectations. For example, an office building without internet or security, or a building with an outdated design and layout, would not be enticing to potential tenants. This in turn impacts property value.
External or economic depreciation is the loss in value due to factors outside of the subject property. In this case the decline in value can occur due to changes to the property’s neighborhood, such as the closing of restaurants and stores near an office building. Another example could be based on infrastructure developments such as new roads or bridges which can negatively impact property value.
