Commercial appraisals ordered for a loan

The federal banking agencies adopted the Interagency Appraisal and Evaluation Guidelines to replace the 1994 guidelines. The FDIC's Financial Institution Letter 82-2010, dated December 2, 2010, and the OCC's Bulletin 2010-42, dated December 10, 2010, describe that issuance. The OCC bulletin says reliable appraisals and evaluations are part of real estate lending, that a bank bases credit decisions primarily on the borrower's ability to repay, and that collateral value is a secondary source of repayment. It also says banks select appraisers for competence and independence, and that an analytical tool such as an automated valuation model cannot replace an appraisal when the transaction requires one. The FDIC letter adds that a valuation which does not provide market value, such as a broker price opinion, is not acceptable as an evaluation. Those are supervisory statements about banks. They are not a Capital Market Funds appraisal, and they are not a value for any Arizona property.

Commercial practice, which the guidelines sit on top of, asks the appraiser to consider three approaches. The sales comparison approach looks at what similar properties sold for. The cost approach looks at what it would take to replace the building, minus depreciation, plus land. The income approach looks at the rent the property produces. The appraiser weighs them. A leased retail center usually leans on income. A vacant special-purpose building may lean on cost or on a thin set of sales. This page does not pick a weight and does not state a capitalization rate. The lender's engagement letter tells the appraiser which approaches the assignment needs.

As-is is not as-stabilized

As-is value is the property in its current occupancy and condition, on the inspection date. As-stabilized value assumes lease-up, a renovation, or a new anchor has already happened. As-complete value assumes construction is finished. Lenders size a loan to the value that matches the collateral they will actually have at closing. A bridge on a half-empty building is not sized as if the as-stabilized paragraph were today's rent roll. Using the higher figure without the conditions attached is how files get repriced late. Timing follows the property: a multi-tenant center with a thick lease file takes longer than a single leased building. The borrower does not control the appraiser's queue once the lender has engaged.

Value is an input the lender uses with the income tests described on debt yield versus DSCR and loan-to-value. It is not a proceeds promise. Private and life-company lenders often follow the same independence idea even when they are not the banks the 2010 bulletins address. Ask who is allowed to talk to the appraiser. Feeding the appraiser a projected rent roll labeled as in-place rent is a way to have the report rejected.

What the borrower still prepares

Leases, the trailing operating statement, a rent roll, plans if renovation is underway, and a contact for the inspection. Those papers are listed on the document checklist. The borrower may not select the appraiser on a regulated bank loan. Offering three names is not the same as engagement. Capital Market Funds can help assemble the package for the lender who will order the report. We do not sign the appraisal and we do not shop a target value.

The office is 7373 E Doubletree Ranch Rd #255, Scottsdale, AZ 85258. The phone is (480) 495-8072. Capital Market Funds, LLC - CBK-2007014 - Commercial Mortgage Banker and NMLS 1445066. Nothing in the guidelines is a commitment that a particular Arizona property will appraise at a figure you have in a model.