Watch out when purchasing commercial real estate investment or income property, for the appraisal process may KILL your deal!
After finding the PERFECT commercial real estate investment property, whether triple net property, shopping centers or office buildings, at the very end of your deal things can go south with an inadequate appraisal.
Can you do anything to avoid this possible problem with your commercial real estate investment property?
Maybe? Getting some great comparable sales data from your broker or the listing broker can help and provide this info to the lender who hires the appraiser in the first place.
You, the buyer, cannot talk to the appraiser due to legal issues with lenders. If the appraisal comes in too low for the lender to make you a loan with your equity you want to place in the deal, they could turn the deal down or request you put in more equity to make up for the lack of valuation.
The appraisal process normally takes 30 days or so and then your lender will approve or disapprove shortly thereafter. So give yourself plenty of time to get out the transaction and allow about 15 days after approval to close on the purchase.
Your due diligence you are granted should include the loan process time but If you don’t include loan approval in order to keep the deal and not let it get away to an all cash buyer, you are taking a chance the appraisal will come out fine or you have extra equity to place in if it didn’t.
Commercial real estate investments or income property all have similar requirements, good cash flow, cap rates that are reasonable for the quality and length of lease, location of the property and condition of the building.
Since many of these buildings trade daily, it is not difficult to find proper comparable sales data to determine if the property is in line with the sale price. Like buying a car, there is plenty of data out there supporting the price of the model you desire.