I recently posted the following simple question to the RMA (Risk Management Association) blog, "Are commercial appraisals truly meaningful to the process for banks beyond regulatory compliance"?  I received a few responses but the one that got my attention was from a chief credit officer/senior lender of a bank in Florida.  The writer stated that appraisals are "compliant pacifiers".  Ouch!

He also went on to say, "Over the past few years, I have seen both commercial and residential appraisals miss their evaluations by over 50%, further supporting their use just for regulatory pacification.  However, in light of providing basic market demographics, statistics and general information (which can all be gleamed from the internet basically free), the usefulness of an appraisal depends on the information it utilizes to support its evaluation. I think the appraisals need to utilize the current information (short sales, foreclosures, bank disposed of assets, etc.) along with local professional real estate personnel's information (actual sales, BPO's, BOV's, etc.  Then within the appraisal report the difference in the values should be explained, if there is a difference, but why would there be, the market dictates the value."

The CCO continued with, "This way the appraisals will become a useful underwriting tool to base credit decisions that will hopefully in the future be more realistic if not conservative, but based the current environment, I'll take conservative at this point.   So, I think for now appraisals are a cost to pacify regulatory agencies, but hopefully, one day, if they are done properly can be a useful underwriting tool for credit, as initially intended."

To be fair, other comments were favorable to our industry including: commercial appraisals are one more piece to the puzzle, they provide valuable market data, help credit folks make decisions, temper the borrower's overly optimistic projections, etc.  Another writer, an SVP from a Georgia bank, finds commercial appraisals extremely valuable not only providing information on the subject property but the market in general which is particularly important for income producing properties.  This SVP went on to state that his bank maintains good relationships with their appraisers and do not view appraisal firms "all being the same".  This particular bank takes into consideration the appraisers' expertise as a key factor in decision-making.

I think the foregoing suggests that we as appraisers need to do a better job communicating our value-add to our clients.  I'm not making excuses for the few "bad" appraisers out there but rather the majority that provide strong ethics, high-quality work product and go the extra mile to provide great market research.  Most good commercial appraisers have substantial knowledge in many facets of real estate, oftentimes much more than other professionals such as real estate attorneys, lenders, brokers.  The reason is that we see a lot of deal flow through our subject properties and confirmation of sales.  For one typical report, you might talk to a dozen property owners, brokers, buyers or sellers.  As appraisers, let's raise the bar and better inform our clients of our worth to the real estate process.