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[Commercial Grade] Update on the Update

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John Cicero, MAI [1] provides commentary on issues affecting real estate appraisers, with specific focus on commercial valuation. John is a partner of mine in our commercial real estate valuation concern Miller Cicero, LLC [2] and he is, depending on what day of the week it is, one of the smartest guys I know.
…Jonathan Miller

My firm is quite busy with “updates” these days. More and more lenders are being asked to extend or renew loans for projects, or their loans are ending up in “special assets” (or whatever term the bank uses for their loan workouts.) So we find ourselves more and more being asked to “just go back and update what we did a year or two ago”.

There seems to be an expectation amongst some lenders that since we had been out to the property within the past two years (or had previously reviewed plans for a proposed property) that we can just bang out a new appraisal in no time and at a nominal cost. They often fail to recognize that in order for the new valuation to be meaningful, the same appraisal process must be followed.

According to USPAP (Advisory Opinion 3) [3]:

regardless of the nomenclature used, when a client seeks a more current value or analysis of a property that was the subject of a prior assignment, this is not at extension of that prior assignment that was already completed-it is simply a new assignmentThe same USPAP requirements apply

Now, more than ever, focused market research is required for any appraisal. The most recent comps and/or, in the absence of empirical market data, broker interviews are critical. For new construction projects, it is imperative that the new plans (or project that was eventually constructed) are the same as what was originally submitted.

That is not to say that having some familiarity with the project won’t expedite the process, and in many cases my fee for the “new assignment” of a prior appraisal will be 25% or more below the original fee. Just as often, however, I find that because I know the complexity of the project, a discount off the original fee is not warranted.