Evaluations are here to stay. They are a growing end of the commercial real estate valuation industry. An Evaluation is an Appraisal in a short format, done for a lender under rules that exempt whoever is making the Evaluation from the Uniform Standards of Professional Appraisal Practice. Whoever, that is, except licensed appraisers. Evaluations can be done by anyone who doesn’t have a license – the lumber salesperson, the lady at the cosmetics counter, the guy selling hot dogs at Fenway Park. Evaluations are the banking industry’s answer to the situation where a borrower wants only a small loan, and the cost of a standard Appraisal is out of proportion to the loan amount.
Ten years ago, federal regulators opened the door to these low quality Appraisals. The Evaluation business has only grown. By any reasonable definition, an Evaluation is an Appraisal. An Appraisal is an opinion of value. So is an Evaluation. The banking industry may like Evaluations because they are quick and low cost. But they put banks at risk: how can an Evaluation done by an un-licensed novice be as good as an Appraisal by a licensed professional? Evaluations put the appraisal industry at risk by allowing untrained people to do appraisal work. The only people who can’t do Evaluations are appraisers, or so the thinking goes. Evaluations aren’t USPAP-compliant, so only appraisers can’t make them, because only appraisers are bound by USPAP. They destroy appraisal standards. They undermine the appraisal profession.
We have Evaluation offices that will hire anyone but an appraiser to make Evaluations, which are Appraisals. We have Appraisal offices that hire novices to sign Evaluations made by appraisers, who are afraid to sign them out of fear that these Evaluations violate USPAP.
This cannot stand.
What is the solution?
The solution is for appraisers to get past a couple of myths that stand in their way.
One myth is that Evaluations can’t be done to a standard that meets USPAP requirements for an Appraisal Report. Of course an Evaluation can meet Appraisal Report standards. Appraisers: need simply to do the things that need to be done for a basic Appraisal and leave out the lengthy statistical descriptions - of the town, the county, and the metropolitan area – the bells and whistles. Make your Evaluation/Appraisal short.
Another myth is that the low cost of Evaluations makes them un-profitable. The solution here is to use technical tools that allow an appraiser to cut time and “cut to the chase.” If your client doesn’t require that you inspect the property or interview the owner – neither of which is required by USPAP – then put in a half day making a report, and bill at your standard rate for your time. If you and your client are uncomfortable with that and feel that the inspection and interview are necessary, then do those things and bill for that, too. Your Evaluations may cost more. But your client will benefit from a level of comfort that isn’t there with the shoddy work product of someone with no expertise.
You might also find that you enjoy making Evaluations. You may like that they dispense with the window dressing. You may like that they cut to the chase.
How do you make an Evaluation? Here are six steps.
We could not have done this 20 years ago. We did not have the technical tools. No rapid data sources. No Zaxia to speed things. We have that now.
Why let this business get away?