Tag Archives: appraiser


October 16, 2018 – The Federal Agencies have issued an updated guidance titled ‘Frequently Asked Questions on the Appraisal Regulations and the Interagency Appraisal and Evaluation Guidelines.’  This rescinds a similar document issued in 2005.

You can download this 14-page document at the following URL:


Please pass this document along to your in-house appraisal staff and other bankers.

Reportedly, there are no significant changes.  Simply, an update of a 13-year old document with some needed clarification.


August 9, 2018 – Over my 30+ year career, this question has come up every few years.  When performing the Income Approach for a vacant or owner-occupied building (same thing), should there be discounting for the time and cost to lease it up?

My short answer is – Yes.  However, I would say 99% of appraisers do not make such a deduction.  Why not?

A few notes before I summarize a great response from an appraiser who does make the deduction.

First, America’s definition of Market Value assumes a sale occurs.  Therefore, an owner-occupied property is vacant when it sells.  That occupant moves out so either a new owner occupant can move in or third-party tenants can move in.  I have long argued that EVERY house/condo in America sells vacant – regardless if the owner occupies it right up to closing or it is physically vacant beforehand.  Of course, rental properties are the exception.

Second, the Income Approach assumes an investor owns the property and will lease it up to stabilization to third-party tenants.  The Income Approach does not assume owner occupancy!

Therefore, a vacant or owner-occupied property has to be leased up to obtain stabilization that is assumed in the direct cap method of the Income Approach.  Lease-up is not free and instantaneous that often.  Below is the summarized response that was shared with me.

As always, I welcome your thoughts.  Unlike our cultural and political world, differing opinions are welcome and will not be called ‘tone deaf’ or racist or some kind of phobic and so on:)  If I get enough comments, I will do a follow up post.

(Oh, let me add that the Sales Comparison Approach will depend on what sales are used.  If the comps were 100% vacant and/or owner-occupied, then the SCA already reflects such discounting for lease-up.  If the comps were partially or 100% leased, then….hmmmmm….)

(Second oh….all of this is needed to determine one of the 3 highest & best use conclusion items – type of occupancy.  Sometimes it is Owner Occupancy and other times it is Third-Party Tenants via an Investor owning the property.)

OK, finally to the Anonymous Appraiser Reply:

  1.  For the purpose of our analysis, owner-occupied space is presumed vacant and subject to deductions to reach stabilized occupancy in the “As Is” Market Value.
  2. FIRREA requires appraisers to “Analyze and report appropriate deductions and discounts for proposed construction or renovation, partially leased buildings, non-market lease terms, and tract developments with unsold units.”
  3. The present value of all costs necessary to achieve stabilized occupancy (including rent loss, leasing commissions, concessions, tenant improvements, rehabilitation costs, and/or profit loss) incurred during the lease-up period must be considered in developing the “As Is” Market Value conclusion.
  4. ((In this particular appraisal, )) The sales utilized in the Sales Comparison Approach were all vacant or owner-occupied; therefore, no lease-up adjustment was applied to the Sales Comparison Approach.

I agree with this logic.  Even for non-FIRREA appraisals.

What does the market do?  Well, that is answered in the Sales Comparison Approach as prices for vacant and/or owner-occupied properties reflect how an owner values the property or an investor values it knowing s/he has to find a tenant(s).


And remember, Spend Forward, Use Forward!


April 23, 2016 – I write this in a purple-tinted world.  Prince music playing in the background….

This past week I ‘celebrated’ my 30th year as an appraiser.  Time flies and it certainly has been an interesting career.  It has taken this long to finally get to my ultimate goal – reviewing appraisals worldwide.  I recently started performing reviews in South America and hopefully Africa is next.  Talk about interesting appraisal reports!

I would imagine that some people would ask what I have observed over the decades.  A few things come to mind…

First, the trend for appraisal fees was down when I started in 1986 and has continued in that regard.  I recall in the late 1980’s we never bid less than $10,000 for a hotel appraisal.  By 1992, when I started working at a bank and ordering appraisals I was able to get hotel appraisals for under $5000.  The trend has been the same for other property types.  The exception being residential appraisal fees that have increased from around $150 to over $400 in general.  Funny how it is the residential industry that cries the most about fees!

Regarding appraisal quality that has also been in the same direction as fees.  I recall in 1992 and onward I would publicly say that 95% of appraisers were incompetent.  That held until 2008 when that increased to 99%+ of appraisers currently being incompetent.  The main cause was the crisis resulted in significant Highest & Best Use issues for problem properties and this generation of appraisers was not taught how to think (sort of like The Stupidest, er Millennial Generation).  As a result, the quality of work declined significantly from 2008 thru today.  I have yet to run into a fee appraiser who has become a review appraiser who doesn’t agree that the quality of work in the industry is pathetic.  And that is being generous.

I haven’t observed much else.  In the past few years, I have seen more good appraisers get out of the industry than ever before.  This past week it was good to hear from a friend that he has totally exited the industry and moved on to a new career.  And another long-time friend is actively transitioning over to brokerage.  I am seriously thinking about starting a business to assist appraisers in transitioning out of this industry and into something new that they will enjoy.  Life is too short to be miserable.

As for the talk about there being a shortage of appraisers – it is total BS!  This is simply propaganda by the ‘establishment’ (i.e. NAR and Banks) to get standards for becoming an appraiser lowered.  They know they can better control stupid and incompetent people than smart and competent people.  My measurement of a shortage of appraisers is when commercial appraisals take 60-90+ days to complete – like in the RTC days.  And when residential appraisals take 3-4 weeks.  Until that occurs, there is no shortage of appraisers.

An update on my market projections…..

GOLD – The metal is up 23% from its low and mining stocks are up 122%.  Gold hit the $1285 area I projected and declined to the low $1200’s as forecast, too.  It has been bouncing around and wasting time, as is often needed.  I think there is still a chance to see $1190-$1200 again.  But, I believe the $1380-$1500 range is still very likely.  I have not sold any of my gold or gold stocks.  This bull market is still young.  Silver has finally exploded to catch up with gold.

STOCKS – I’m looking for a 1500-2000 point decline in the DOW from here.  I did get out of my dividend stocks (T and DUK) as they were up 10% this year and that sector was the best performer in the first quarter.  I am hoping for 10% declines in each stock so I can get back in them.

OIL – I initially was expecting a 50% rally from around $35 to over $50 by June.  However, oil went down to around $26-$30 first before rallying to near $44 this past week.  The 50% rally has occurred.  I think the rally is limited now to $2-$8 more – so $50 can happen, but heck the projection is close enough to being complete.  My Exxon investment is up over 15%, but I am not cashing that in.  I am still an oil and gold bull for a long period of time.

SOYBEANS – New crazy prediction (similar to my oil one in January).  Beans got above 10 cents (per bushel) this past week for the first time in a year.  I see 12 cents and maybe 13 cents this Summer – not a great forecast as they could hit that next week if they wanted to.  But, still if it comes true it is better than those who expect the price to decline:)  The bigger prediction is for Beans to hit 20 cents for the first time in history next Summer.  For that to occur, we would likely have one of the worst droughts in Midwest history – like the Dust Bowl.  I doubt rain and flooding could do enough damage to send prices to all-time highs, but that is an alternative.  I admit I won’t be playing this forecast.  If it happens, I’ll probably quit forecasting and kick myself for missing out on the greatest bull market in Bean history.

Enough for now….

Prince, we all now know what it sounds like when doves cry….R.I.P.


Market Value As Is is not always the same as Market Value

August 24, 2015 – I had this email exchange with a review appraiser today.  This is one of the situations where Market Value As Is and Market Value can differ.



I have a question regarding an appraisal that I am reviewing if you have a moment to help me out.  I am overthinking this and now can’t decide which is correct.
Background info:  The property is a large (100,000 SF) multi-tenant industrial building.  The client asked for “as is” and “as stabilized” values in the engagement letter.  The building is currently 30% vacant and the appraisal estimates stabilized to be 15%.  The appraisal also states that the building will achieve stabilization within the year.  Four of the tenants have rent increases within the next 12 months.  The appraisal utilizes the current rent roll at current rent levels, but increases the four tenants to their future rate.  In addition, rent for the vacant space is estimated at market levels.  Using these parameters, PGI is estimated.  Vacancy is set at 15%, expenses are subtracted.  The appraisal then has two below the line expenses for tenant improvements (assuming a 10-year amortization) and leasing commissions.  The resulting figure is capitalized into a value which the appraisal calls “as is”.  The appraisal further states that this is also “as stabilized” because the property will be stabilized within the year.
Here is where I feel that I’m over thinking this.  I know that the Income Approach is based on the principle of anticipation and that future income is to be considered.  So is the “as is” value the rent roll at current rent levels with no consideration toward the rental of the vacant space and no bumps in rates for the 4 tenants?  Or is the application noted above correct give the anticipation of future benefits?
I find it hard to believe that the “as is” and “as stabilized” can be the same value since the property is not currently stabilized.  However, given the principles of the Income Approach I can also see how this could be so.
Sorry for the long email.  I would appreciate any guidance you can give me on this.  I value your input.
On a side note, I have enjoyed reading your website and blog; very informing.

Thanks re the blog….appreciate it.
Regarding the As Is Value, the appraiser is wrong.  For a Market Value appraisal (non-Bank client), s/he may be right or wrong.
As Is means just that.  Deductions MUST be made for leasing commissions to go from 30% to 15% vacancy.  TI for that same space.  And lost income during the 12 months the space is leased.  And of course discounted for time.
The December 2010 Interagency Guidance states the following:

Partially Leased Buildings – For proposed and partially leased rental developments, the appraiser must make appropriate deductions and discounts to reflect that the property has not achieved stabilized occupancy. The appraisal analysis also should include consideration of the absorption of the unleased space. Appropriate deductions and discounts should include items such as leasing commission, rent losses, tenant improvements, and entrepreneurial profit, if such profit is not included in the discount rate.

I tell appraisers MV As Is different from Market Value.  In a general MV appraisal, MAYBE (only maybe) might the market not make deductions if they think all will be fine within a year.  Personally I would make deductions if buying your subject property, but optimistic investors may not.
However, for As Is appraisals the deductions MUST be made.
I think it would be fun for you to ask the appraiser for a list of names and numbers of people s/he talked to that said in a case like this they would not make any deductions for LC, TI, and rent loss.  Simply say you would like to talk to market investors and better understand their viewpoint:)  I seriously doubt you will be provided with a list of such contacts.
I hope this helps.