Why does a commercial appraisal cost more than a residential appraisal?

Many people don’t know the cost of a commercial appraisal. They are often stunned after they get a quote. Most people only know the costs and turn-around times for appraising single-family homes. In general, commercial appraisal costs anywhere from $2,000 to +$5,000 dollars and takes two to four weeks to complete. The costs of commercial appraisals vary mainly by the assignment’s complexity. They also vary by data availability, needed turn-around time, and scope of work. Commercial appraisals cost more than residential appraisals for several reasons:
1. Commercial properties tend to be more complex than residential properties. They often have many tenants, diverse income streams, and varying lease structures. Evaluating these factors takes more time and skill. This can increase the cost of the appraisal. The level of detail and analysis differs greatly from a residential single-family home appraisal. Those appraisals analyze a residential form (10 to 20 pages). The form mostly involves checking and filling boxes. A typical commercial appraisal is an in-depth narrative report ranging anywhere from 60 to +100 pages. There are multiple valuation methods. They are the Income, Sales, and Cost Approaches. In contrast, a residential appraisal mainly only uses the Sales Comparison Approach. Commercial appraisals include detailed reports on site and building improvements. They include diagrams, sales history, and ownership. They also include zoning info, regional and market area descriptions, flood plain analysis, and age/life analysis. They also include market analysis. This covers supply, demand, vacancy, and absorption. They also include published surveys and broker interviews. And, they include highest & best use analysis, valuation analysis, rent and sale comparables, expense comparables, cap rate comparables, adjustment grids, and more.
2. A commercial appraisal takes many hours to complete. It takes from 30 hours to several weeks.
3. Commercial properties are larger. They may have a wider range of uses, like office buildings, retail centers, and industrial warehouses. This is unlike residential properties. Appraising larger properties with more extensive features and potential uses requires additional effort and resources.
4. Market data may be less available for commercial real estate. It has less than for residential markets. The lack of data makes it hard for appraisers. They struggle to assess the value of commercial properties. Appraisers may need to do more research and analysis. This can lead to higher costs.
5. Appraising commercial properties needs specialized expertise. This includes income valuation, cost analysis, and market trends. Appraisers with these specialized skills command higher fees for their services. Also, appraising commercial properties requires a specific state license. This license, called “certified general,” is much harder to get than a residential appraisal license.
6. Commercial appraisals face stricter regulations than residential ones. Appraisers must follow specific reporting rules. These rules are set by organizations like the Appraisal Institute and the Uniform Standards of Professional Appraisal Practice (USPAP). Compliance with these standards may involve additional time and effort, contributing to higher costs.
7. Liability concerns are due to the higher value and complexity of commercial properties. They bring greater potential for appraisal-related liability. Appraisers may need more liability insurance to reduce these risks. This can raise their costs.
Remember, quality matters more than cost when choosing a commercial appraiser. It means the difference between reaching a goal, securing a loan, closing a sale, reporting to investors, choosing the best asset, or failing.

About the Author

Matthew Reynolds, MAI is a commercial real estate appraiser with Vanguard Realty Advisors. He has been appraising commercial real estate for +20 years. He has done simple and complex appraisal assignments, including land appraisals. He can help you navigate and understand the commercial appraisal process. Please contact him for any appraisal services or to request a quote.