Encyclopedia
Appraisal
A written opinion of a property's market value prepared by a qualified appraiser, usually for a lender, court or estate.
For example: A lender financing a building purchase orders an appraisal before it confirms the loan amount. (Illustration only, not a real deal.)
This is a general industry term with no single official definition. Your lease or contract wording controls.
Example only, not a real client. Say you are refinancing a small office building. The lender orders an appraisal, which values the property using comparable sales and its income. The value sets how much the lender will lend.
What I’d tell a friend
An appraisal is an opinion of value at a point in time. Give the appraiser good information on leases and income to help get a fair result.
Why it matters to you
The lender lends against the appraised value, not your purchase price. If it comes in low, you need more cash, a better price or a different lender, often with only days left in your subject period.
How to use it in your deal
Buyers should know the lender's appraisal may come in below the purchase price, which can reduce the loan; plan for that in your financing subject. Ask who orders the appraisal and how long it takes. Owners can order appraisals for refinancing, estate planning, disputes or assessment appeals. Read the assumptions, comparables and approach used; small changes in cap rates or rents can move the value a lot.
An appraisal is different from a licensee's opinion of value or a BC Assessment value. In BC, many commercial appraisers hold the Accredited Appraiser Canadian Institute (AACI) designation from the Appraisal Institute of Canada. Appraisals have an effective date, so older ones may not reflect current conditions.
Give the appraiser complete leases and operating statements so the report isn't built on guesses. If you disagree, ask questions or provide more information rather than pressuring for a number. Ask the appraiser which comps carried the most weight and why.
Mistakes I see
Assuming it will match price. Not reading assumptions. Using old appraisals.
In BC and Vancouver
The Appraisal Institute of Canada sets professional standards.
Official sources: BC Assessment appeal guide
What it is
An appraisal is a professional estimate of a property’s market value, prepared by a qualified appraiser.
Commercial appraisals often use more than one method, such as comparable sales, income and cost.
Getting a good result
Provide current leases, rent rolls, operating statements and details of recent improvements.
If you think the value is wrong, ask the lender how to raise factual errors or request a review.
Questions to ask before you sign
- Who orders it?
- What approach is used?
- What are the key assumptions?
- What's the effective date?
Keep reading
Related terms: Opinion of value, Comparable sale (comp), capitalisation rate (cap rate), Assessed value
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General information for British Columbia only. It isn’t legal, tax, accounting or financial advice, laws and rates change, and reading it doesn’t make you my client. Any numbers or scenarios are hypothetical. Check the linked official source and talk to a lawyer, accountant or other qualified professional before you act or sign anything. See the terms and disclaimer.