As a commercial real estate broker, it’s easy to feel like the appraisal process is out of your hands and there isn’t anything you can do to help move it along.
Contrary to this popular belief, there are actually a few things you can do to make sure your appraisal is moving forward as fast as possible. To make your appraisals sail through the process flawlessly (with no surprises!), keep these four best practices in mind.
1. Be realistic on timing.
There’s an old saying that time kills deals. The idea is that if you drag out the deal too long it’ll end up dying on its own, even without your help. While this might be true in the appraisal process, it’s also true in the loan closing process. As you know, the loan closing process requires a lot of effort on behalf of the buyer and seller in negotiating the price, terms, condition, close dates, and more, but in the end there is very little consideration given to the loan closing process itself. Once the buyer and seller come to an agreement, the buyer goes to the lender to determine loan terms, close date, and from this point on it’s a rush of who can get to the finish line faster.
When these last steps are expedited, the appraisal due date begins to grow dangerously close to the closing date. This can create a lot of unneeded pressure on everyone involved because at the end of the deal, the buyer, seller, lender, and the appraiser all want a quality appraisal which reflects the true value of the property.
Once you start to squeeze the time frame for the appraisal, that’s when mistakes happen. During the commercial appraisal review process we often start to find errors in these kinds of appraisals and then are required to go back to the appraiser for corrections and modifications. This inevitably draws out the appraisal process even more and starts to put pressure on all parties involved to get the loan closed.
The solution? When you know up front that the average commercial property takes 20 to 30 days to appraise depending on your state, you can be more realistic on timing. Don’t know the average turn time for your state? Download a free benchmark report and ensure you factor in this time into your next property negotiation.
2. Be prepared and available.
As you just read and have surely experienced in your own process, there’s plenty of work that needs to be completed before loan closing, and typically the broker, buyer, and seller have lots of information to deliver to the lender who then translates this information to the appraiser.
You can be better prepared for the appraisal process by having the documentation that you know the lender and appraiser will need at the ready. Some of these documents can include leases, operating statements, site plans, surveys, and environmentals so the appraiser doesn’t have to wait on the buyer, seller, lender, or broker for this information. Once the appraisal is ordered, make sure you’re available to set the inspection for the property with the appraiser and be available when this time rolls around. Many appraisals are delayed when the appraiser can’t get in touch with the property contact. Be prepared and don’t let this be the case at your next closing.
3. Be armed with the right information.
Come to the table prepared with comparable properties, property information, and any other helpful information that you know would be important during the evaluation of the property. Keep in mind that the appraiser’s first time looking at the property is probably when the appraisal assignment is ordered. Make sure your CRE property has been prepped properly and have on hand everything you know about the property, area, neighborhood, comps, or deals being done in the area, so you can mention them to your appraiser.
While there is a fine line between influencing an appraiser’s value and providing good quality information, we think it’s in the best interest of both the broker and the buyer/seller to provide the appraiser with any information that might be helpful in the evaluation of the property to have a better understanding of the background and history of the area.
4. Be involved, even after the appraisal is complete.
Most of the time with appraisal regulation, appraisal independence, and after Dodd-Frank became a known rule, people began to take a really far stance on how much interaction you can have with an appraiser. At MountainSeed, we always tell folks to be aware: even after the appraisal comes back and the lender has given the broker, buyer, and seller a copy of the appraisal, the deal is not yet done.
While looking at the appraisal — take your time and pay attention to details. Instead of flipping right to the back page to see what the value is, do your due diligence now so you can save on time and money later. We understand that appraisal terminology can be daunting, but once you’ve read through the entire appraisal, be willing to provide commentary to the lender if you see something that you don't understand or feel like wasn't supported well. If you think there is a comparable sale that wasn’t included, be involved in the process and tell your buyer. If you’re a broker and you make a few comments on the appraisal, the lender can then reach out to the appraiser independently or their appraisal management company can submit a dispute resolution form.
Ready to take more control of your appraisal process? Don’t be afraid to get involved and talk with your appraisers — we don’t bite. If you have more questions on the appraisal process, let us know. We’d love to help.