A real estate appraiser must identify the client and other intended users in order to properly define the problem and to understand the appraiser’s responsibilities in an assignment. This is accomplished by communication with the client at the time of the engagement.

A commercial real estate appraiser must not allow the intended use of an assignment or a client’s objectives to cause the assignment results to be biased.

The definition of the value to be developed in a commercial appraisal establishes specific conditions. These conditions impose parameters on the real estate appraisal assignment that are necessary to ensure that the results of the assignment are meaningful in the context of that definition of value.

Two dates are essential to a commercial real estate appraisal report. Standards Rules require that each commercial appraisal report state the effective date of the real estate appraisal and the date of the report. The date of the report indicates the perspective from which the commercial appraiser is examining the market. The effective date of the commercial appraisal establishes the context for the value opinion. Three categories of effective dates – retrospective, current, or prospective – may be used, according to the intended use of the commercial real estate appraisal assignment.

Characteristics would include its location and physical, legal, and economic characteristics; the real property interest to be valued; any personal property, trade fixtures, or intangible assets that are not real property but are included in the commercial real estate appraisal; any known easements, restrictions, encumbrances, leases, reservations, covenants, contracts, declarations, special assessments, ordinances, or other items of a similar nature; and whether the subject property is a fractional interest, physical segment, or partial holding.

EXTRAORDINARY ASSUMPTION: an assignment-specific assumption as of the effective date regarding uncertain information used in an analysis which, if found to be false, could alter the commercial appraiser’s opinions or conclusions.

HYPOTHETICAL CONDITION: a condition, directly related to a specific commercial real estate assignment, which is contrary to what is known by the commercial appraiser to exist on the effective date of the assignment results, but is used for the purpose of analysis.

A commercial appraiser must analyze the relevant legal, physical, and economic factors to the extent necessary to support the appraiser’s highest and best use conclusion(s).

When a sales comparison approach is necessary for credible commercial real estate appraisal assignment results, a commercial appraiser must analyze such comparable sales data as are available to indicate a value conclusion.

When a cost approach is necessary for credible commercial real estate appraisal assignment results, a commercial appraiser must:

i) develop an opinion of site value by an appropriate commercial appraisal method or technique;

(ii) analyze such comparable cost data as are available to estimate the cost new of the improvements (if any); and

(iii) analyze such comparable data as are available to estimate the difference between the cost new and the present worth of the improvements (depreciation).

When an income approach is necessary for credible commercial real estate appraisal assignment results, a commercial appraiser must:

(i) analyze such comparable rental data as are available and/or the potential earnings capacity of the property to estimate the gross income potential of the property;

(ii) analyze such comparable operating expense data as are available to estimate the operating expenses of the property;

(iii) analyze such comparable data as are available to estimate rates of capitalization and/or rates of discount;

(iv) base projections of future rent and/or income potential and expenses on reasonably clear and appropriate evidence; and

(v) weigh historical information and trends, current supply and demand factors affecting such trends, and anticipated events such as competition from developments under construction, when developing income and expense statements and cash flow projections

When the value opinion to be developed is market value, a commercial appraiser must, if such information is available to the commercial appraiser in the normal course of business:

(a) analyze all agreements of sale, options, and listings of the subject property current as of the effective date of the commercial real estate appraisal; and

(b) analyze all sales of the subject property that occurred within the three (3) years prior to the effective date of the commercial real estate appraisal.

In developing a real property appraisal, a commercial appraiser must:

(a) reconcile the quality and quantity of data available and analyzed within the approaches used; and

(b) reconcile the applicability and relevance of the approaches, methods and techniques used to arrive at the value conclusion(s).

In reporting the results of a real property commercial real estate appraisal, a commercial appraiser must communicate each analysis, opinion, and conclusion in a manner that is not misleading.