Appraisers' Free Forum

LingLing wrote:Thank you very much for your quick response. Well. Why we chose to locate our practice in the city of Fort Pierce? Good question. My husband is a surgeon and he wants to locate his practice right in front of a major local hospital. When we moved from California, this is the only hospital that doesn't have a surgeon with his specialty (now we know why). He rushed into renting this office space without too much research and rent negotiation. We relied on a local medical office management company that didn't tell us about the city. I was mad at my husband's decision but he is already locked in for 5 yr lease. I should say the local hospital administration has also welcome him with an open arm. His business is doing well and people driving from very far away to see him because of his skills. Now the landlord wants to sell his condo to him. Maybe I am being unreasonable. I just don't think we should pay the price that is calculated based upon another city. I think no past sales and high vacancy rate should be calculated into FMV. Yes. One of your answers is right. I found another appraiser who told me that he can't find any recent sales in the area and will have to use the hot area as the comparison. We may have to wait until there is a recent sale.

Again, my bolds....

Ling Ling,

We might be into something here... it's early so, it might take a few responses, to diminish [from a distance] the Seller's appraisal..

I, for one, am confused, why was no income approach done, based upon the above statements, Isn't there a value of the 'leased fee' estate... Does the "subject" not provide a basis for Gross Rent Multipliers=GRM's? etc....

I think the No income approach was boilerplate, how do the rest of you view that?

Christine Marie wrote:I think the No income approach was boilerplate, how do the rest of you view that?

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I too may need to use some waffle words. But, despite Jim's very astute analysis, I think the income approach may have merit here, because there is not much question the property is rented therefore intended somehow as income property. If they have to rent it at throw away prices that is certainly relevant to value regardless of what investors wanted or had in mind for it. If the only market is an investor market, be-friggin-wary. What is to indiecate that anybody other than investors would ever want to speculate with it?

Also Mr. Ling Ling is renting it and I guess buying it for his business, and there is definitely a rental income or expense question implicated, whether investors or the owner think of it that way or not.

If this investment rather than income grade property, then pay not much because the Ling Lings are gambling in shark infested waters.

In a report for a commercial building it should have explained why neither the income or the cost was used. There may be valid reasons for excluding the cost, but for a property that is being rented, I cannot see any reason why the income was excluded......and its exclusion should have been discussed in depth.

Okay, I miss understood you, I thought you hired this appraiser. Ed is right, in that case, the appraiser can't talk to you. YES, do go get your own appraisal! To flat out not even consider the income approach is poor appraisal practice. If it's not applicable, the appraiser has to give a darn good reason and document why. We can't just ignore an approach because we don't want to do it. That creates a misleading appraisal, and could be a violation of USPAP.

A little clarification, please, LingLing. Your husband is renting a medical office, but now the landlord wants to sell you a condo, or the office is in the condo? I am confused and fuzzy on that area.

benluby wrote:A little clarification, please, LingLing. Your husband is renting a medical office, but now the landlord wants to sell you a condo, or the office is in the condo? I am confused and fuzzy on that area.

The office is in an empty building. The total sf of the building is ~25000 sf. We rented ~2500 sf of the space (shell) and borrowed a good amount of money (~$250K) to have it built up as a office with four walls and separate entrance (this is the reason he wants to buy. ~250K already spent). There will be other offices but so far, it is empty except our office. The space we are in is the space (condo) my husband wants to buy. I am immigrant so my English is confusing ...Sorry to confuse you.

Regarding the seller's appraisal, the appraiser only used Sales Comparison approach. I also notice that the comparison sales he used are not in our city and also 18 month old. 18 months ago, we are the peak of the residential market. I don't know the relationship between residential market and commercial market, just some facts for you, experts to digest.

In addition, how do I find a good reputable appraiser? What kind of language should I look for? I called two appraisers. No price discussed and just ask their opinion. One told me that he would use sales comparison and cost approaches. The number generated from this approach should be similar to the income approach (I guess he means that no income approach is needed). The second appraiser told me that cost approach doesn't apply since it is a condo. Income approach and Sales comparisons are valid approaches. The office of the second appraiser is located in Ft. Pierce. The second one also told me if there is no recent sales in Ft. Pierce, he will have to use the data from hot area. From what I learned from your discussion, the second one seems to have more expertise since he eliminated cost approach fast and also notified me that he does his best but doesn't mean that he will appraise the property lower than seller's appraisal. What do you think?

I'd talk to the second appraiser, personally. Not to raise dead dogs, but just because it costs $XXX to build something doesn't mean it is worth $xxx.
Since it is being used as primarily a commercial enterprise (your husbands' office) I'd also make sure that the appraiser is competent to appraise commercial.
I'd also be curious to find out what some of your husbands colleague's are paying for similar properties in rent.
You are working in a primarily commercial area, and I'd feel that the income approach would probably be the most valid indicator of market value, due to the difficulties of going to a hot area in what sounds like a different market.
I'd also recommend waiting for the more versed members on here that deal with those types of properties regularly to chime in. They are much more competent than I am.

It is very difficult to diagnose your problem via the internet, but I will attempt to assist you.

* The residential market and the commercial market are two different markets. They MAY have a correlation but often they do not.

* If you are not the client (ordered and paid for the appraisal) then the appraiser cannot speak to you unless he has the permission of his client (your landlord).

* It would appear that the appraiser was either incompetent or was hired to do less than what some of us refer to a "full scope" appraisal.

* 18 months between the sales date of the comparable sales and the date of the appraisal is not a long time unless their are more recent comparable sales. I often use sales that are up to 60 months old.

* Hopefully, you had an attorney represent you before signing a lease. If you invested $250K of your own money for the build out, there needs to be provisions for that in lease, either by way of lower lease rate, extended lease term, or an option to purchase at a lower price.

*An appraisal would value the property based upon what a typical buyer would pay for the property. IF you improved that property by $250K, perhaps the landlord would be willing to accept that much less than the appraised value. (see above).

* In another thread on this board, you have already been given sound advice on how to hire an appraiser. For additional sources, ask the hospital trustees whom they use for appraisal services. If you intend to finance the purchase of the condo, ask your lender which appraisal firm they use. They will also need to hire an appraiser if you buy and finance it through them. Using the same company will most likely save you money by not having to pay full price for two appraisals.

* Consider why the landlord wants to sell.

* It may be more financially advantageous to you to continue leasing the property than to buy it. An appraiser can assist you with a lease/buy decision, but that is not typically part of an appraisal. It is a consulting service that many appraisers provide.

* If you decide to purchase, PLEASE have an attorney review the condo documents (condo docs) before entering a purchase agreement for this property.

* If you need help, continue posting or contact one of us directly. My contact info is on my website:
www.appraisal-consulting.com

LingLing,
Use the second appraiser. Two things recommend him from your description: He determined right away that the cost approach wasn't applicable to a condo, which indicates a good understanding of appraisal principles. Secondly, he told you up front that his opinion might not necessarily be lower than the other appraiser's, indicating that he has integrity.

One credential you can look for is professional designations: In this case, IFAS or MAI would be good recommendations. Although those designations by no means *assure* competence, those who possess those letters after their names have passed a peer review process, and other experienced appraisers have found their work to be competent.

I concur. The second appraiser "sounds" better.

Jim Plante wrote:LingLing,
Use the second appraiser. Two things recommend him from your description: He determined right away that the cost approach wasn't applicable to a condo, which indicates a good understanding of appraisal principles. Secondly, he told you up front that his opinion might not necessarily be lower than the other appraiser's, indicating that he has integrity.

Ditto 2. The second one obviously knows and understands commercial condo appraisals.

Christine Marie wrote:

I don't watch the news on a daily basis, but for some reason, I did watch it tonite.... and i think the St Lucie market was one identified and portrayed in the crunch "foreclosure increasing numbers list".....

Ling Ling, sorry to tread on your thread, but i think that if a growing number of the investors are bailing out of their indebtedness, might further help in your situation.... Sorry to toss fuel to the fire, but, any economic activity that is affecting the current market needs to be taken into consideration... More specifically, it is very concievable, that prospective Investors are not going to be looking at properties in the area.... This is only a surmise, at this point.... Wish we had more Floridians in here that would voice their particulars, as far as market conditions, as well...

But, as we are still growing, Maybe, they will, once they read the thread.... or maybe a mod will rename it appropriately specific to your particular market area, and attract more Southerners attention...

You are right. St. Lucie residential market got hit hard and no bottom can be seen yet. The vacancy rate for commercial real estate is increasing. If it is up to me, I won't buy anything now. But my husband and a group of consultants (management consultant and accountant) are telling him that it is a good time to buy. I hate them. I don't know what my husband's problem is. It may be have to do with ego (like I own my practice condo...). Since he is the one who wants to buy it and probably won't do the research and will rely on that two snakes again, I will be the one to supply the data to convince him buy or not to buy at this time. By the way, our appraiser just told us that our rent is bit higher when compared with the area. I am an immigrant so what "a bit" mean, very high, 10-20% high... Again, I hate that two snakes that didn't advice him for the rent negotiation ( we paid them $9000 total to do the work and they just told him it was reasonably priced).

Sounds to me like Mr. Ling Ling has decided to buy and Mrs. Ling Ling doesn't think its a good idea. Are we getting involved in a domestic dispute here? If so, I would reccommend before anything more is said by us that Mr. & Mrs. Ling Ling discuss this matter and decide what they, as a team, want to do about this.

LingLing wrote:I don't plan to talk to seller's appraiser. I plan to hire our own appraiser. But before I hire him, I would like to know whether he will use all approaches suggested here 1. Sales Comparison. If there is no recent sale in the city, use the most recent possible, do time adjust. 2. Cost approach. 3. Income approach. Am I too demanding? Is my request reasonable?

Your request is not unreasonable, however, there might be valid reasons for excluding an approach to value. I am one of those who happens to believe, because of many experiences, that the cost approach can often be a strong indication of market vlaue. In other words, I support the use of that approach where it is appropriate to use it. However, in your situation, as I understand it from your description, it does not sound like the cost approach will be reliable and possibly not even credible. When an approach cannot be completed credibly it is wrong to use it.

Here's why. It is possible to build something for which there is no market. The vacancy rate in your building might possibly indicate that there is no market, or very limited market, for condo office space in that area. The fact that the appraiser did not find local sales for comparison adds to this suspicion.

But, I digress... the question is:

"I would like to know whether he will use all approaches suggested here"

The way to find the answer to that question is to ask. You have learned a lot on this thread and that will make you better prepared to question potential appraisers before hiring them. Ask a lot of questions and listen to the answers. A good appraiser will not mind explaining things to you before beginning. However, remember what one other poster said here... the appraiser may not know for certain what the entire scope of work will be before starting. Expect him or her to explain the basics and their usual method of work, but you cannot expect them to commit to a specific approach before they have researched the market. Of course, you might luck out and find an appraiser who already knows a lot about the market there from past appraisal work. That would be a lucky break for you, but does not necessarily mean that an appraiser who did not already know those answers would do a poor job. You kind of have to use your gut instinct here. Good luck.