An estimate of the “market” value of Commercial Real Estate prepared by a licensed appraiser. Appraisers may be licensed by the State and may also be designated as an MAI appraiser (usually required by banks). When making business loans collateralized by real estate lenders will generally require the appraisal to conform to the Uniform Standards of Professional Appraisal Practice (USPAP), which sets forth guidelines for valuing property. Generally,
appraisers use three methods for determining values: the “cost approach,” which refers to the value of the land and the cost to construct the building and improvements, the “sales comparison approach,” which analyzes the sales of similar properties in the area, and the “income approach,” which analyzes the income generated or projected to be generated by the use of the property and applying a capitalization rate to that number. Appraisers will often use and reconcile all 3 approaches to arrive at a value.
