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Commercial Evaluations

The appraisal industry is rapidly changing, and these changes usher in challenges as well as solutions. A declining appraiser pool can sometimes lead to appraisal delays and contribute to industry frustration. A more lengthy appraisal process can also create a disconnect between the borrower and the lender. This concern is significant in the commercial lending space as well as the residential.

To counter this dynamic, viable substitutes to traditional appraisals continue to emerge within the marketplace for qualifying situations. These substitutes are most often referred to as Evaluations. Evaluations are typically administered by real estate brokers and agents and follow practices set forth by the FDIC’s Interagency Guideline (IAG). They are most suitable for small loan balances as well as due diligence, portfolio monitoring, loan modifications, default services and extensions of credit. Lenders may also use evaluations for origination purposes when valuing a commercial property under a $250,000 loan threshold.

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So, what are the key differences?

The evaluation process is governed by the Interagency Guidelines and offers an abbreviated set of standards to accommodate qualifying transactions, while the traditional appraisal process is governed by USPAP which outlines a comprehensive set of standards by which to operate. Prices for evaluations are often less than the price of appraisals. Commercial evaluations generally cost under $1,000, while commercial appraisals can cost anywhere from $2,000 to $4,000 for similar properties. The time required to complete an evaluation is also reduced. Evaluations are generally completed in ten business days or less, while commercial appraisals generally require three to four weeks.

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The commercial evaluation form contains several approaches to value which includes land values, a comparable analysis (three comparable listings; three comparable rentals; three comparable sales); line item adjustments; local market trends, including vacancy rates and the subject’s neighborhood; income approach; subject property transaction history; capitalization rate; operating expenses; current subject photos; and commentary. Field agents perform interior site inspections as requested. The reports address current zoning, site utility, construction quality, assessment information and highest and best use.

Because the standards are not as extensive for evaluations, it is critical for lenders to understand the processes their vendors use including the use of technology, data resources and manual review.

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Lenders that understand the differences in the products offered by the market and the appropriate application of each can, in many cases, lower costs and expedite the production of credible values.

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Acquisition Enables LRES To Offer Commercial Evaluations

LRES, a national residential and commercial real estate services company providing valuations, REO asset management, HOA and technology solutions for the mortgage and real estate industry, now offers commercial evaluations through its recent acquisition of InsideValuation.

Performed and reviewed by its strong network of more than 25,000 field agents, these evaluation products contain thorough data and analysis to procure accurate and timely valuations for commercial properties. These evaluations incorporate several approaches to determine value, including comparable sales analysis and an optional income approach.

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Evaluations are more cost effective than traditional commercial appraisals, reducing valuation costs by up to 75 percent. They also reduce turn time by as much as 50 percent or more, with standard 10 business day turn time or optional 5 business day rush option. These valuation products can often be used in situations that do not call for a full appraisal, and there are a number of cases covered in the interagency guidelines that allow the lender to forgo a full appraisal.

Commercial evaluation reports address construction quality, site utility, current zoning, assessment information, highest and best use, projected use and external obsolescence. The reports also analyze local market trends, including vacancy rates and the subject’s neighborhood. Land-only evaluations are also available. All evaluation reports include a site inspection performed by an experienced field agent along with current subject photos obtained at the time of inspection.

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All evaluations are fully compliant with the Interagency Appraisal and Evaluation Guidelines (IAG) and the Office of Comptroller of the Currency (OCC) requirements. LRES’ InsideValuation team reduces compliance risk through its thorough evaluation quality control process, as evidenced by its less than 2 percent kick-back rate.

LRES’ commercial evaluations are offered through a different portal developed by its technology team in Reno, Nevada.

“Our commercial evaluations live up to the high standards we place on our residential valuations, and our diversified offering provides even more options for our valued customers,” said Roger Beane, founder and CEO of LRES.

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