Are you in an appraisal rut or looking to expand your offerings? Adding real estate benchmark studies and capitalization rate studies to your list of services could be your way out.
For example, adding cap rate and real estate benchmark studies can meet the following goals:
Capitalization rate studies involve confirming and analyzing recent investment property sales to form an opinion of the appropriate capitalization rates. These studies are completed for various types and classes of investment property. Firstly, and most importantly, you must confirm the sales. The confirmation process includes contacting someone with direct knowledge of the sale for all known sale details.
Moreover, the confirmation includes:
During the confirmation process, you will have the opportunity to forge strong relationships with local brokerage members and investment communities. As a result, these contacts are a great source for referrals.
Similarly, real estate benchmark studies use this same data as a source for estimating ranges for multiple areas. For instance, in market rent, vacancy and collection loss, and expenses for various types and classes of investment property. Certainly, there is an overlap between the two studies, therefore, they are generally completed at the same time.
More and more county and state appraisal jurisdictions are engaging private appraisal firms to prepare capitalization rate and real estate benchmark studies. The benefits to the appraisal jurisdiction are many. Firstly, private appraisers often have access to superior data sources, and their work adds additional credibility to the ad valorem process.
Likewise, a huge side-benefit is re-using the high-quality data that you have been paid to research. Few data sources are as valuable to an appraisal office as the detailed data included in these studies. Moreover, this data can provide excellent inputs for all aspects of the sales comparison and income approaches in a fee appraisal. In addition, it also greatly improves the delivery timeframe.
The conclusions from these real estate benchmark studies supply the key inputs for mass appraisal income models. Meanwhile, smaller jurisdictions with similar demographics often participate together in these studies to share costs. This ensures that the combined number of sales is sufficient for a well-supported analysis.
Further, many jurisdictions hire these studies on an annual or biannual basis. In addition, they generally offer a long lead time between the contract for services and the required delivery date. Above all, this long lead time allows the appraiser to have lots of flexibility to work on the studies as their schedule permits. After the studies are completed, there is often additional work on an hourly basis. For instance, testifying in hearings or court to support the study. In short, it is a recognized skill that generally commands a premium fee.
Many of you reading this blog are thinking about growing your business and having well-confirmed high-quality data can help. Similarly, state-of-the-art technology is a great recruiting tool when adding appraisers. These are two important factors in systemizing your appraisal practice.
You can learn more about preparing capitalization rate studies and how our firm uses realquantum as our technology platform to prepare capitalization rate studies by viewing this recent webinar: What is a Cap Rate Study?
Dan Craig, MAI is director at Keller Craig for the Kansas City market, an accomplished commercial real estate appraiser, investor, developer, and attorney.
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