Academic journal article ABA Banking Journal

Appraisals: You Get What You Ask For

Academic journal article ABA Banking Journal

Appraisals: You Get What You Ask For

Article excerpt


With commercial real estate values having fallen 40-45% since their peak in mid-2007, lenders increasingly face the challenge of establishing values for workout properties. The solution to this challenge, said several experts during a recent telephone briefing conducted by ABA and The Appraisal Institute, is for lenders to maintain close communications with appraisers.

The first thing to make clear, said panel moderator Bob Seiwert, is, "What is the purpose of the appraisal?" Seiwert, is senior vice-president, and head of ABA's Center for Commercial Lending and Business Banking.

Robert Parson, appraisal policy specialist at the Office of the Comptroller of the Currency, added, "Lenders need to link the right value scenario to the loan purpose ... so you know you're on the same page."

In general, Parson explained, "right value" includes "market value," "disposition value," and "liquidation value." Tom Boyle, chief appraiser for U.S. Bank Real Estate Technical Services, Portland, Ore., said these values are characterized by marketing limitations and the degree of urgency for the borrower to sell.

"Market value" is the price a property should bring in a competitive and open market without time constraints. Today, however, it is basically a "best guesstimate."

"Disposition value" refers to a sale within a limited future period--usually 180 days--where the seller is under compulsion to sell. There is time for marketing.

"Liquidation value" involves a much more limited timeframe--usually 90 days--where the seller is under "extreme compulsion" to sell. …

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