How can I tell if I am working with a good appraiser?

The best way to check on the credibility of a commercial appraiser is to call the state in which they practice and ask if there is any history of complaint. There are also credit and reporting bureaus that will let you know if the firm has ever been sued or has any credit history problems. In addition, you should also not hesitate to ask for references and a list or sample of similar projects. You may verify the licensing status of all appraisers in the State of California on line at www.orea.ca.gov.

What is an appraisal “fee shop”?

Most appraisal firms today are “fee shops”. Fee shops are appraisal firms running under a pyramid system where the fee shop owner has less experienced subordinates running around doing the work for them for a fee split of 40% to 50%. In order to pay the fee shop subordinates a reasonable fee split the lead appraiser has to charge higher fees and manage at least four associates to be a financially feasible enterprise. In order for the fee shop appraiser to review the work of the four associates an extra week or two is typically required for each report. In addition, so much review and deskwork is required to run a fee shop that in many instances the signing appraiser (the appraiser that takes responsibility for your appraisal) rarely inspects many of the properties he is signing off on. As difficult as this may be to believe, this is the typical system in place today. By going with a non-fee shop, right off the bat, you move from having a less qualified person meeting with your client and doing the report, to a highly qualified person, a more competitive fee, and typically a shorter turn-around time.

What makes Chandos Pacific better than most appraisal fee shops?

Chandos Pacific is better than most appraisal fee shops because it is not an appraisal fee shop. The signing appraiser personally inspects all properties and conducts all key research. This is essentially a philosophic split from the fee shop business model. From our perspective, the fee shop model is detrimental to clients as it increases the opportunity for confusion, error and professional liability.

What is positive about this is a licensed professional meets with your borrower every time. Should questions arise, there is no third party, or unlicensed junior associate involved. You can call in to check on the status of your project and speak directly with the person handling your transaction verses the larger fee shops where the partner has to refer questions out to the sub-contracting associate. We keep things simple by doing fewer reports for select clients.

I have heard appraisal firms are conservative. Does this mean my appraisal will be low?

No. Appraisers bear liability both ways – if they under appraise a property they assume liability if the owner sells the building for too little. They have a vested interest in looking at both high and low sales and going right up the middle. In a rising market they will tend to place emphasis on the higher/most recent sales. In a falling market they will tend to place emphasis on the lower/most recent sales. Since Chandos Pacific typically conducts a preliminary estimate up front – there is little risk in receiving an unanticipated value. No surprises.

Will my property appraise for what my loan officer indicated?

Generally speaking, yes. However, it is actually against the law for an appraiser to accept an appraisal assignment based on a contingent value, thus all preliminary values provided to you by your bank are just that, preliminary. In practice, loan officers typically have carefully established their own internal value estimates in great detail before your report is ordered. If all the information provided by you to the bank at the time the report is ordered is found to be accurate, then our findings should be similar.

The only instance when your report could be significantly lower in value is if the square footage of the property turns out to be notably less than originally reported, if leases in place are significantly higher than what surrounding properties are leasing for, or if a construction company has provided you with a substantially inflated construction bid. Typically most brokers and owners know if their leases are at market and the size of their buildings so this is a very rare occurrence.

What is USPAP?

USPAP stands for the Uniform Standards of Appraisal Practice. USPAP is a set of rules that govern the way appraisals are to be prepared. It is approximately 90 pages of detailed standards that cover ethics, the reporting process, and consultation and personal property appraisal. USPAP is published each year by the Appraisal Foundation, based in Washington D.C., and appraisers are required to regularly attend seminars keeping them up to date with USPAP changes. A federal law stipulates that appraisers be licensed by the state in which they practice. California state law requires that appraisal reports adhere to USPAP, and the State of California regulates and licenses appraisers that practice within the state. More information may be found at www.appraisalfoundation.org.

What is FIRREA?

The savings and loan crisis led to significant legal reform in the late 1980s. The reform enacted by congress is referred to as the Financial Institution Reform and Recovery Act (FIRREA). FIRREA essentially took over the regulation of the appraisal industry and gave it to the individual states based on new terms and requirements. FIRREA left the private appraisal organizations somewhat displaced. The Appraisal Institute (the MAI group) almost went bankrupt and nearly shut its doors, then finally merged with several other appraisal groups and continues to be a leading provider of appraisal education.

Appraisers licensed post-FIRREA had to meet stricter terms to obtain licenses with the state. Chandos Pacific Appraisal is a post-FIRREA firm that obtained its educational course work through the Appraisal Institute and is a member of the Foundation of Real Estate Appraisers and an Associate Member of the Appraisal Institute.

Older firms tend to be pre-FIRREA firms and the members typically advertise and promote their appraisal organization membership. Note that none of the private appraisal groups govern appraisers, only the state in which the appraiser practices has the right to issue appraiser licenses and oversees all appraisal activity. As you can see, over two decades ago, before state laws became uniform in requiring all appraisers to be audited, trained and tested, private memberships were the only means a bank had of establishing if an appraiser might be qualified. Times change and so have lending regulations. If your bank stipulates your appraiser must be a member of the Appraisal Institute, the Foundation of Real Estate Appraisers, or any other appraisal group, it is actually in violation of FIRREA and federal banking regulations. The Federal and State government currently have ruling authority over appraisal regulations in the United States.

What if my appraisal is for less than I anticipated?

No one is more interested in you having an accurate appraisal than we are. If for any reason you feel your appraisal is too low or too high, Chandos Pacific has an open door and open file policy. We will forward all comparable research and information to your office for your review – and carefully consider any information you believe we may have over looked with no questions asked. We want all clients to be happy with our work and are glad to take the time to insure our findings are accurate and clearly understood by anyone relying on our reports.

If I am not happy with my loan package can I take my appraisal to another bank?

Not without the bank’s permission. Commercial appraisals are ordered by the lending officer and bank to establish agency with the lender, not the borrower. As strange as this may seem to some borrowers, even though they may have paid a fee for the appraisal, the appraiser’s fiduciary duty is to the bank that ordered the report (client that established agency) not the loan applicant. The appraiser may not even tell the borrower the value of the property over the phone. It is against the law for them to do so. Appraisers are required by law to report this information to their client and only their client.

What kind of client are we at Chandos Pacific interested in?

Our business model only works well with lenders, attorneys, investors and CPAs looking for highly ethical and accurate reports. This means legal and condemnation clients seeking to fairly resolve disputes. One reason we do so much work for Fortune 500 companies is that we tend to prevent litigation between these companies and their long-term tenants. These tenants are often investing millions in improvements on land they are leasing, while the companies are often entering into 20-year land leases. A well document and fairly prepared report means no disputes or future complications.

On the banking side we need committed, well-organized, lenders serious about the closing process and providing excellent long-term service in the market place. Loan officers experienced with managing borrower expectations and the appraisal exhibits required to prepare a report allow us to do our best work.

In turn, borrowers that are happy with the appraiser they meet with tend to be happier with their bank. We believe we can add significant value to the business practices for clients of this nature – and our clients tend to be long term and happy.