Appraisal Matters

Like my blogs on ceiling height and sprinkler adjustments, appraisers frequently misjudge how to adjust for refrigeration in industrial buildings.  In demonstration appraisal reports for the Appraisal Institute’s MAI designation, I’ve seen it treated as a super adequacy.  This is considered more the rule than the exception, yet appraisers run the risk of appraising by rote.  Before even considering how to quantify such an adjustment, several questions must be answered:

• How do market participants react?  This is more a function of how “hot” or “cold” the market is (i.e. functional obsolescence is frequently overlooked when there are few buildings on the market) and how useful this feature is to market participants.  Brokers are the best source for finding this out.
• What is the subject’s market niche?  When the subject is a food distribution facility, it is necessary, but even then the flow of the building is viewed as more important than how adequate or inadequate the current refrigeration system is.  Using other refrigerated food distribution comps negates the need to even consider this adjustment.
• Who are the market participants?  Just because a building has refrigeration does not mean it’s worth something to the next user.  Look to the market and generate statistics.  If refrigerated space makes up, say 2 percent, of the local market, why bet your adjustment on such a small percentage of need?
• Where is it located?  Again, if it is located in a food distribution area, which usually has good numbers of bulk warehouse buildings (30+ foot clear ceiling heights), it is much more likely to be a necessary component, so with a more vigilant data gathering program, you can get the rental comps required to produce a credible appraisal.  It may take a couple of extra weeks to get the data, but it’s worth it.

John Simpson, MAI