Bank appraisal vs private appraisal: who the report is for, and when you need your own

A bank appraisal and a private appraisal are the same kind of report, prepared by the same kind of appraiser under the same standard, CUSPAP. The difference is the client. In a bank appraisal the lender engages the appraiser and is the intended user, even though the borrower usually pays; the report is addressed to the lender and answers the lender's question, which is whether the property secures the loan. In a private appraisal you engage the appraiser, you are the intended user, and the report answers your question: what to pay, what to ask, what to declare, or what to argue. Neither is higher or lower by design. They can differ because they are written on different dates, for different purposes, with different scopes.

Who orders which, and who the client is

A bank appraisal is ordered by the lender, usually from its own list of approved appraisers, when you apply for a mortgage, move a renewal to a new lender, or take a construction or bridge loan. The lender is the client and the intended user. You pay the fee in most cases, and you may or may not be given a copy; that is the lender's decision, not the appraiser's, because the report is addressed to the lender.

A private appraisal is ordered by you, or by your lawyer or accountant on your behalf. You are the client and the intended user: you choose the appraiser, you set the purpose and the effective date, and you receive the report.

The appraiser's obligations are identical in both: independence, CUSPAP, a signed certification. What differs is who asked the question, and what the question was.

Why the two can come to different numbers

Same property, different number, and both can be right:

• Different dates. A lender's report from last spring and yours from this month value two different markets.
• Different purposes and scopes. A financing report answers "does the property secure the loan" and may be written to a narrower scope. A report for a purchase, a buyout or a dispute analyses the leases, the income and the comparables in more depth.
• Different instructions. A lender may instruct the appraiser to assume stabilised occupancy, to exclude certain income, or to value the property as it stands rather than as complete. Your report uses your instructions.
• Different evidence. An appraiser given the rent roll, the operating statements and a full inspection has more to work with than one given a drive-by scope.

What does not differ: a designated appraiser does not write a low number to please a lender or a high one to please an owner. Both reports carry the same signature and the same standard, and either can be examined by another appraiser under CUSPAP's Review Standard if a party disputes it.

Can you rely on the bank's appraisal?

Only if you are named in it as an intended user, and most lender reports name the lender alone. To use a lender's report for a purchase decision, a partner buyout, a tax filing or a court matter, ask the appraiser for a reliance letter, which adds you as an intended user for a stated purpose, or commission a report of your own. Handing one lender's report to another lender rarely works; the second lender orders its own.

When a commercial owner should order a private appraisal

• Before you buy. The lender's appraisal arrives after you have agreed a price, and it protects the lender. A private appraisal before the offer tells you what to pay.
• Before you refinance or shop lenders. Knowing the value first tells you how much you can borrow and whether a lender's number is reasonable.
• When the lender's number came in low. A private appraisal is independent evidence to take back to the lender, or to the next one. It does not oblige the lender to accept it, but it is the only credible way to challenge the figure.
• For anything that is not a loan. A purchase or sale between unrelated parties, a partner or shareholder buyout, a tax appeal, an estate or capital-gains filing, an expropriation, insurance, or litigation. The lender's report does not answer these questions and cannot be relied on for them.

What a reliance letter is

A short letter from the appraiser that extends an existing report to a named additional user for a named purpose, for a smaller fee than a new report, provided the report's effective date and scope still fit. It is the right tool when the report is recent and the new use is similar. It is the wrong tool when the date has moved, the purpose has changed, or the new user needs a scope the original did not have.

Every Aion report is prepared to CUSPAP by an AACI-designated appraiser and reviewed by a second one before it is signed, whether the client is a lender or an owner. What a report has to contain is in our guide to CUSPAP; what a commercial property valuation involves is on the valuation page; what the fee depends on is on the cost page.

Need your own appraisal of a commercial property? Request a quote or call 1 (888) 260-9582.