Key Considerations When Ordering a Real Estate Appraisal or Valuation

Understanding the nuances of real estate appraisals and valuations is essential for investors and property owners. An accurate property valuation can help you evaluate an investment opportunity, secure financing, or make strategic decisions.  

Understanding Your Valuation Needs  

Before you order an appraisal or valuation, define your purpose. Different scenarios require specific types of values.  

Are you assessing the current value, projecting future worth, or planning for a specific use? Knowing this upfront makes sure that you get the right kind of valuation.  

Types of Values in a Valuation  

As-is Value 

This represents the current worth of the property or land. The “as-is” value reflects the market price without any improvements or changes. This baseline value helps you gauge the property’s starting point and is required for lending and financial reporting.  

Value Upon Completion  

For development projects, you’ll need to consider the value upon completion. This accounts for the property’s worth once construction finishes. Lenders often require this estimate for construction loans.  

Value at Stabilization  

Once fully tenanted, a property reaches its stabilized state. The value at stabilization considers the income potential when all units are occupied. Investors and developers use this figure to assess long-term profitability.  

Market participants typically only seek a property's fair or market value. However, there are instances when other types of values are desired, including:  

• Liquidation Value: What can you expect if forced to sell quickly?  

• Value in Use: What’s the property’s worth based on its specific purpose (e.g., school, house of worship, stadium, power plant, etc.?    

• Going Concern Value: Consider existing businesses on the property (hotels, restaurants, etc.)   

• Insurable Value: What would you receive if the property was destroyed?   

• Valuation for Purchase Accounting: Separate land, buildings, and intangibles for accounting purposes.   

Appraisal vs. Valuation: Which is Right for You?  

When deciding between an appraisal and a valuation (or a broker opinion of value), consider the following:  

Appraisal 

Appraisals must conform to the Universal Standards of Professional Appraisal Practice (USPAP). These are generally recognized ethical and performance standards for the appraisal profession, set and enforced by government entities. This means your appraisal report must contain certain items. 

Valuation (or Broker Opinion of Value) 

A BOV, or valuation, is more flexible in scope. It can range from a simple one-page estimate to a detailed cash flow analysis. It is suitable for monitoring properties or basic financial reporting.   

Additional Considerations  

It’s important to look at the full picture when valuing a property, as certain details are not included in a BOV. For example, cash flows can be used to identify if a property’s value has changed. Additionally, sales comps are often reviewed to see if a property has become impaired.  

Choosing the Right Reporting Format 

The format of your appraisal or valuation report matters.  

Traditional Narrative Appraisal 

It is ideal for those seeking traditional bank financing or testifying in court. Detailed, spanning hundreds of pages, with macro and micro descriptions, demographic data, and market analysis.  

Restricted Report  

A restricted report includes minimal information in the body of the report, with supporting documentation available in a separate work file upon request.  

Why Do Valuations Matter?  

Informed decisions start with accurate valuations. Whether you are purchasing, monitoring, or selling a property, you need to be aware of the characteristics and attributes of each particular property. A client’s business plan may be altered as prices change in the market or if situations arise in the property itself.  Understanding your property’s value is imperative in today’s ever-changing environment.   

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