Appraisers' Free Forum

There's the reason that I suggested the desk review: your eye is untrained.

You may be completely correct in your conclusions. But if you're wrong....
Well, if you did that to me, and I found out who did it, you'd be on the wrong end of a libel suit very quickly. The desk review will give your untrained eye some credibility in professional circles, and will give you a nice place to stand if and when lawsuits start flying. The review will not cost as much as answering a single legal complaint would.

Talk it over with your bank's MAI; in the alternative, look up another MAI on the Appraisal Institute's website. If you proceed without the desk review, you'll be quite exposed.

LingLing wrote:May I send both reports plus a complain directly to the appraiser institute since it is so obvious at least in my untrained eye?

Before you do anything, have the reports reviewed as Jim Plante suggested. Should it be found that there are problems with the reports, then you can proceed by sending copies to not only the AI but also to the state appraisers' board in Florida (the board there doesn't take kindly to games or misleading of the public).

Stop! I think this review business is counter-productive to Ling Ling's current objective, which I now understand is to purchase the building at an honest and favorable price. Tell me how review and investigation is going to help get that done.

There is always negotiation between buyers and sellers, and it involves the effort of meeting the minds of the principles. There just happens to be appraisals involved in this one and, as far as I know, both appraisals may be credible.

Lingling, you've got to keep in mind that there are many legitimate reasons for two appraisals of the same property to differ. Appraisers give you an opinion, not a mathematical solution.

In commercial appraising, many times there will be subjective judgments involved. We have to estimate the level of risk of an investment. Often we'll have a fairly wide range of indicators. I may have reasons to choose the higher number, and Otis might choose the lower. Neither of us is necessarily wrong, but the final indication of value will be significantly different. One of us may rely on the sales comparison approach, and the other may think the income approach is the only way to go. Both opinions are valid and professionally cognizable.

So don't wade into lawsuit country unless and until you've had the reports professionally reviewed. Even though your bank's appraisal favors your position, he could be full of horse feathers and your seller's appraiser could be more nearly correct. Step carefully before you accuse.

Personally, I'd just make the offer and wait them out. Those commercial reviews aren't going to be cheap.

Thank you again. But my point is that how can the same appraiser that appraised the same property at the same date came up totally different price (one is $180/sf and the other is $240/sf). I understand it will be different but the difference is huge here. How can both appraisals are valid? If so, how can we trust an appraiser's opinion?

One is $180/sf without the buildup and the other is $240/sf with the buildup, no? There may be other factors as well, and since I haven't seen the appraisals and don't know the market, I can't tell you.

But another MAI who is familiar with the area and property type can tell you whether those differences are due to a valid set of conditions or assumptions.

Look, it takes nearly ten years' experience to get the qualifications necessary to become an MAI. This should tell you that commercial appraisal is quite complicated. What might be an obvious error to you may be nothing more than a different set of assumptions at work. Don't just wade in and start swinging. At least get another equally qualified appraiser to take a look to see whether what appears obvious to you is also obvious error to him/her.

Jim Plante wrote:One is $180/sf without the buildup and the other is $240/sf with the buildup, no? There may be other factors as well, and since I haven't seen the appraisals and don't know the market, I can't tell you.

But another MAI who is familiar with the area and property type can tell you whether those differences are due to a valid set of conditions or assumptions.

Look, it takes nearly ten years' experience to get the qualifications necessary to become an MAI. This should tell you that commercial appraisal is quite complicated. What might be an obvious error to you may be nothing more than a different set of assumptions at work. Don't just wade in and start swinging. At least get another equally qualified appraiser to take a look to see whether what appears obvious to you is also obvious error to him/her.

You are probably right. Just to clarify both are the valuation of the shell. There is no build up involved. The same space and same shell at the same time and at the same location can be valuated so differently. There may be reasons but I don't get it. I will sit back and wait. I also want to make sure the MAI I chose to review the appraisals will not be someone who knows the MAI prepared these two appraisals. If I chose someone in my area, I feel they may know each other. BTW, is there a MAI who is very well known to give a good review of other's work without worrying offending other MAIs? I know you guys are good. I don't have too much confidence in MAIs in south Florida. If you know a good one and whose opinion is well respected, please let me know. At this point, we lost the interest in buying the property. We can afford some of that 20% down payment to hire a good MAI to review the case. Thanks,

Edd Gillespie wrote:Stop! I think this review business is counter-productive to Ling Ling's current objective, which I now understand is to purchase the building at an honest and favorable price.

A review is an appraiser's opinion of another appraiser's work. How could that not be a good thing to someone getting ready to spend money on real estate? At best, you get a good review opinion that spells out both areas of agreement and areas of disagreement with the appraiser being reviewed. At worst you get a poor review appraisal, in which case you are no worse off than before. How could more information (especially when the information already presented has conflicting results) possibly be detrimental?

I think the Original Poster would benefit more from a consultation (which may include a review) vs. a stand-alone review.
Correct me if I'm wrong, LingLing, but you not only want to know why there is a difference between the two reports and which of the two is the more credible, but you also want to know (a recommendation) on what to do going forward?
A consultation can do this. It will not only provide you with the judgment call on the two original report's credibility, but then can recommend (based on the review and based on your investment targets) an action to take.

Any counter-opinion to this?

No disagreement here. Sounds like a good plan.

Jim Plante wrote:No disagreement here. Sounds like a good plan.

Ditto.

Thank you all. My hubby's family lawyer has retained a local real estate law firm. From now on, all communications will be handled by the lawyer. The lawyer's plan is the same as you suggested. The lawyer is going to get the third appraisers' opinion. Then all three appraisers will talk to each other to determine a fair price. Hopefully, everyone will do their best and no one can just throw a number around.

The lawyer also has explained something to me which I was not fully aware. The seller is a big drug company. The company acquired this property through the acquisition of other asset. The drug company absolutely doesn’t want to be seen to be dealing with physicians and hospitals other than selling medicine. The federal government will analyze every single transaction among them in order to protect patient’s right. Therefore, we should be prepared to pay a little above the FMV. Our lawyer will prepare the appraisal with the agreement reached by the three appraisers and then, submit to seller. Seller’s lawyer will make sure that it can stand a government audit. Then all parties, hospital, drug company and physicians can do other business without worrying this transaction will come back to bite them. So I am relieved of my duty and I think the explanation is a good one.

Well, having the lawyer do your negotiations is a very good idea, as is the third appraisal opinion.

But I've got to comment that the big drug company's desire to indemnify itself against federal scrutiny does not equate to your having to pay more for their property. Federal scrutiny is the drug company's problem, not yours. They can detach themselves from the transaction through an attorney, just as you have done. Whether you pay more than FMV for the property is a function of how much *you* want it, not how much they want to appear clean.

Yeah for the addition of the lawyer. That was true stroke of genius under the circumstances. Based on Ling Ling's description, he sounds experienced and can work out a plan that can get this thing done. My first reaction when I read she got a lawyer was that she had got one of those billboard ambulance chasers, but this guy might be worth his salt. He's already introduced a new dimension into the deal that we never thought of. The seller has a problem beyond getting market value of the property. The lawyer, with knowledge of the governmental interest in this transaction, should be able to bring the parties together including the bank. Good move Ling Ling. I'd be willing to bet none of the appraisers knew squat about how government scrutiny might effect market value. We need to remember to look into government regulations from time to time and their impact on more than H&BU.

Good luck to the lawyer riding herd on two MAIs though. That may turn out to be the real story. Might be more efficient to scrap them both and get a new one, acceptable to the bank and the seller and who is aware of the seller's constraints.

The situation Jim, is that this property may not be available for simple purchase transaction at what we call market value. It is already requiring two MAIs and an attorney for a $500,000 to $600,000 building. Finally somebody is in it with the needed perspective. Bigger picture it is, and more complicated than the usual 1/2 $ mil commercial transaction. Sounds like the bank's appraiser just might have used the wrong comps or failed to adjust properly for what the owner has to deal with.

Good move Ling Ling. Looks right now that you might have to pay more for this building than you can turn around and sell it for on the same day. Hopefully your attorney can come up with a buffer that works.