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[Commercial Grade] Its The Market, Stupid!

Commercial Grade is a weekly post by John Cicero, MAI who provides commentary on issues affecting real estate appraisers, with specific focus on commercial valuation. Today John begs appraisers to get out from behind our computers and talk to commercial brokers about whats going on in the front lines.

Disclosure: John is a partner of mine in our commercial real estate valuation concern Miller Cicero, LLC [1] and he is, on Thursdays, one of the smartest guys I know. …Jonathan Miller

It’s all about the market. You’ve heard it beforewe appraisers don’t make the market. Rather, we are impartial observers of the marketplace. What I think about a particular property doesn’t really matter. My appraisal must reflect “the market’s” thinking. A very fine, but critical distinction.

It is important, therefore, that appraisers stay in tune with the market. If I find a comparable sale that was recorded yesterday, it most likely closed two months ago and went into contract two months before that. This sales price, therefore, likely reflects the market mentality at least four months ago. In most cases we don’t find a sale that was recorded yesterday, but rather one, two or three or more months ago and, in reality, it reflects a market a half year ago or more.

With rapidly changing market conditions the appraiser runs a real risk of missing the boat if he/she does not make broker interviews part of the normal appraisal process. Not always easy, and some don’t want to be bothered, but my experience with the brokerage community is that if you act as a professional and approach a broker as a professional, they’ll spend some time with you.

The broker interview tells you what’s happening in the market now, not six months ago. What kind of demand are you seeing? What kind of offers are being made? It puts a sales transaction in a meaningful context and gives additional insight into what’s really happening that you don’t get from staring at a computer screen.