Appraisal Matters

Too many times, appraisers adjust by rote, which in the case of ceiling height, can be incorrect.  The following needs to be considered before applying a ceiling height adjustment to a comparable sale:

• Differences in ceiling height may not be functional obsolescence.  If the subject is in a small industrial building manufacturing market, lower ceiling heights are the norm, even when compared to buildings that are 4 or 6 feet higher.  Theoretically, it costs more to heat and cool a higher ceiling building and that’s reason for adjustment, but what if the building user is not heating or cooling the warehouse space?  The extra height does not make a difference in this case, so do not adjust for it.
• When demand is greater than supply, just getting the right building could warrant overlooking any potential functional obsolescence.
• Location is more important than ceiling height in many markets (especially those with manufacturing zoned land)
• Adjustments should only consider tier stacking ability.  For instance, a 14 foot clear ceiling height building can stack 2 six-foot high pallets, but so can a 16 foot ceiling.  No adjustment is necessary in these instances.
• Do brokers consider any or certain ceiling height tiers obsolete?  They speak to plenty of potential buyers and lessees, so they would know.  Ask them (appraisers frequently call brokers to verify sales data and to get lease data, so it’s no great stretch to ask them this question).
• Other factors frequently are more important than ceiling height, so much so that the market may not perceive functional obsolescence as present.  For instance, bulk warehouses typically require ceiling heights of 30 feet or greater to be competitive, but a 24 foot ceiling height may not be functionally obsolete because product flow, preparation and assembly are so critically important to users that differences in ceiling height can seem immaterial in comparison or overshadowed by better space layout/utilization.

Just ask the broker, seller, owner and tenant(s) if ceiling height was a factor.  Keep a table and you’ll have plenty of support for this.
John Simpson, MAI