If you own a commercial property that you use for your business, it’s likely that you may at some point need to obtain financing for a variety of purposes. To get a loan for owner-occupied commercial real estate, you’ll need to get your property appraised to find out how much it’s worth. What you should know about the assessment procedure for loans on owner-occupied commercial real estate is provided below.

What is an Appraisal?

A licensed or certified appraiser will assess the worth of a property in an appraisal. Often, appraisals are performed to establish a property’s value in the event of a sale, refinance, or loan security.

Why is an Appraisal Necessary for Owner-Occupied Commercial Real Estate Loans?

Owner-occupied commercial real estate loans require an appraisal because lenders must know the value of the asset they are financing. The lender has to know the property’s value in order to calculate the maximum amount they can give because it serves as security for the loan.

How is the Value of an Owner-Occupied Commercial Property Determined?

The appraisal procedure is used to determine the value of an owner-occupied commercial property. To assess the value of the property, the appraiser will consider a number of elements, including:

1. Location: When evaluating a property, the appraiser will take into account its surroundings, including its accessibility to major highways, public transportation, and other amenities.
2. Size: The appraiser will calculate the property’s square footage and compare it to those of nearby homes that are comparable.
3. Condition: The appraiser will take into account the building’s age, the roof’s condition, and the caliber of the materials used in its construction when determining the condition of the property.
4. Comparable Properties: To estimate the worth of the property, the appraiser will consider the sale prices of nearby comparable properties.
5. Income: The appraiser will take the property’s income, including rent and other sources of income, into account.
6. Expenses: The appraiser will also take into account the expenditures related to the property, such as maintenance fees, real estate taxes, and insurance.

What Happens During the Appraisal Process?

The appraiser often conducts a preliminary inspection of the property to start the appraisal process. The appraiser will examine the outside and inside of the property, noting any improvements or changes that have been made. Throughout the course of this initial visit, the appraiser may also take pictures of the property.

After the initial inspection is finished, the appraiser will do research to ascertain the property’s value. Public data like zoning maps and property tax assessments may be examined as part of this investigation, along with recent transactions of nearby properties that are comparable.

Upon the completion of the study, the appraiser will put together a report that contains a thorough description of the property, an estimation of its value, and an explanation for that estimation.

How Long Does the Appraisal Process Take?

The length of time it takes to complete an assessment varies based on a number of variables, including the complexity of the property, the accessibility of data, and the workload of the appraiser.

What Happens if the Appraisal comes in Lower than Expected?

Your ability to obtain a loan may be significantly impacted if the appraisal is lower than anticipated. The lender may reject the loan application or demand more security if they decide that the property is not valuable enough to serve as collateral for the loan.

If the assessment comes in lower than anticipated, you might be able to contest it by giving the appraiser more information or by paying another appraiser to perform a fresh appraisal.

A crucial step in obtaining an owner-occupied commercial real estate loan is the appraisal procedure. It offers an unbiased evaluation of the worth of the assets you’re using to secure the loan. You may better prepare for the appraisal process and guarantee that your property is assessed fairly by being aware of the aspects that appraisers take into account when calculating the value of your property.

It’s critical to respond immediately to address the problem if the appraisal is lower than anticipated. By offering more details or using a different appraiser, you might be able to contest the valuation. Yet occasionally, you might need to look into different funding sources or change your plans in light of the new valuation.

The appraisal procedure ultimately aims to safeguard both the lender and the borrower by making sure that the loan is founded on a reliable estimation of the property’s value. You can contribute to a favorable outcome for your owner-occupied commercial real estate loan by being aware of the procedure and working with a qualified appraiser.

F2H Capital Group is a debt advisory firm specializing in negotiating the best terms for your commercial real estate projects. The company offers a range of financial products and services, including fixed loans, bridge loans, and construction loans across all asset types. Please contact us for any of your financing needs.