Business owners purchasing or refinancing commercial real estate financed by an SBA 504 or 7a loan are required to hire a certified commercial appraiser to prepare a real estate appraisal report which includes the “as is” value of the subject property on the day it’s delivered to the lender.
Every loan applicant needs to know the following regarding the commercial appraisal report:
- The cost is generally between $2,500 – $4,500
- The lender’s appraisal department orders appraisal bids from their approved appraiser vendor list
- This means that neither the loan applicant, lender representative, nor the loan broker order the appraisal bids
- Appraisal bids disclose the projected delivery date and cost
- The lender’s appraisal department chooses the appraiser based on the business owners goals, ie. delivery date and cost
- Appraisal reports generally require between two – four weeks for delivery from the date the appraiser is engaged
- The lender’s appraisal department will not disclose the appraiser’s name to the loan applicant prior to engaging the appraiser
- The loan applicant is required to provide the following items to the appraiser:
Recent tax returns, financial statements and appropriate documentation to substantiate any and all recent capital improvements to the subject property
- The loan applicant is expected to arrange appraiser access to the subject property
- The loan applicants sales agent is permitted to supply the appraiser with comparable property sales data to include in their analysis
- The lender’s appraisal department is required to review the appraisal report prior to certifying the appraisers “as is” value. This review may take up to 5 or more business days
- The lender will charge the loan applicant up to $500 to review and certify the appraisal reports conclusions
- The loan applicant is entitled to receive a copy of the appraisal report
- Lender’s generally accept an appraisal report between six – twelve months from the date of original delivery
- After this time period the appraisal report is considered stale and new one must be ordered
- The appraisal report may be transferred from one lender to another lender if the incumbent lender does not ultimately fund the loan
- Appraisal reports ordered to value construction projects will provide an “as is” value and “as completed” value from which the lender will base their amount
In conclusion, the commercial real estate appraisal report is vital to completing the loan application process. Though the majority of the time the “as is” appraised value will match the purchase price, this is not always the case.
If the appraised value is lower than the purchase price, then the lender may require additional cash injection, which is why it is not recommended the loan applicant waive the financing contingency prior to the lender reviewing and certifying the “as is” appraised value.