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4 Innovative Commercial Building Features That Could Prove Difficult to Appraise

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This post was written by Max Shafer, an editor at Innovative Building Materials.

As design and fabrication processes continue to improve with technological advancements, there is no shortage of innovative building materials to hit the market on a regular basis. While these materials offer exciting prospects for commercial building owners in terms of sustainability and energy efficiency, they can cause some issues for appraisers who have not had extensive experience assessing their long-term value. To help in this regard, the following breakdown looks at four innovative commercial building features that may prove difficult to appraise.

1. Transparent Interior Walls

Commercial buildings continue to employ the open floor plan for their interiors. Among the benefits of fewer walls and more open spaces include:

  • Increased natural light flow
  • Greater customizability of space
  • Enhanced collaboration and connectivity among patrons

Despite the benefits of fewer interior walls, the COVID-19 pandemic reminded building owners of the importance of providing separate spaces. This has led to a rise in glass curtain wall partitions.

While these mobile, transparent walls help ensure separation while maintaining the benefits of an open floor plan, they do present some challenges for appraisers. Should they be viewed as real property or chattels? Do they provide value to all types of building tenants?

2. Modern Updates in Historic Buildings

There is a major push in the commercial building industry to reclaim and repurpose historic buildings instead of building new structures. While this process has many cost and sustainability benefits over new construction, it can be difficult to maintain the historical integrity of a building while simultaneously equipping it with the most innovative new features.

There are some companies who perform admirably in this regard, such as manufacturers of historic steel windows that can retrofit the highest quality window solutions that are nearly indistinguishable from the historic building’s classic aspect. However, this creates some challenges for the appraiser. Do the new windows add or detract from the building’s historic DNA? How can you accurately assess the longevity of a building whose components have such extreme variance in useful lifespans?

3. Radiant Floor Heating

Radiant floor heating is an innovative subfloor heating system that steadily disperses heat in an even, stove-like manner throughout the day. It can significantly reduce HVAC costs by eliminating cold pockets in a commercial building.

Despite the clear benefits of a radiant floor heating system, there are some concerns that may be difficult for appraisers to place a value on. For example, repairing the system can be a bit time consuming, leaving sections of the floor inaccessible for extended periods. Furthermore, as other aspects of the building become more energy efficient, the long-term cost benefits of having a radiant floor heating system become a bit muddled. 

4. Solar Panels and Other Green Technology

There is no denying that producing clean energy through the use of PV cells is a desirable feature in commercial buildings. Not only can creating renewable energy lower utility costs, but it can help businesses comply with government-mandated environmental standards.

The challenge when including solar panels as part of an appraisal hinges on a few factors:

  • Deployment of new technology – as PV technology continues to improve and the market gets increasingly crowded, will existing solar panels become “obsolete?”
  • Durability – how much investment will be required for upkeep and maintenance? Will the existing solar panels withstand severe weather or natural disaster?
  • Longevity – how long before solar panels lose their ability to hold a charge?

In addition to solar panels, the same can be said for other green commercial building products that have not been subjected to years of scrutiny. Some examples include:

  • PV window treatments
  • Cooling bricks
  • Self-healing concrete

Appraisers: what types of innovative commercial building features do you believe could prove difficult to appraise?

Max Shafer is a contributor to the Innovative Building Materials blog. He is a content writer for the construction and home improvement industries with an interest in landscaping, outdoor remodeling, and interior design. Max is focused on educating homeowners, contractors, and architects on innovative materials and methods of construction that increase property value, improve sustainability, and create a warm and welcoming ambiance. 

Technology Can Aid, Not Replace, Appraisers

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This post was written by Appraisal Institute President Jody Bishop, MAI, SRA, AI-GRS

New and exciting technology is all around us: we can speak to our cars, use robots to clean our floors, and control our heating from an app on our phones. Big data and artificial intelligence have changed how integrated our lives are with tech. At the Appraisal Institute, we’re hardly tech phobic, in fact, appraisers use technology frequently in their daily work. The typical software packages used by appraisers leverage an assortment of technologies and resources that help appraisers analyze local markets, including practical applications of “big data.”

We’ve seen several companies, however, developing software intended to mimic or supplant human appraisal, with Zillow being the most prominent example. Through their “Zestimate” platform, the company argued it could make real estate investment decisions based on their automated valuation model. When it comes to the biggest purchases in our lives – our homes – an expert who sees, walks, and touches a home to understand its individual value on the market will almost always generate a more credible, reliable opinion of value than what a tech model can offer. At the Appraisal Institute, we say that an appraisal should mirror the market, not speculate on it. When it comes to AVMs, we shouldn’t guess, either.

For so many of us, the COVID-19 pandemic has accelerated the use of technology to ensure safe access to the goods and services we need. In the appraisal profession, this has also been the case, especially in the residential market. To ensure safety of all involved, it makes sense that appraisers would take advantage of the benefits that technology and, in some cases, an off-site appraisal can provide.

Appraisers can rely on hardware such as drones, or applications such as FaceTime or Zoom, to see the exteriors or interiors of a property if it is unsafe to visit a home in person. Appraisers should carefully examine these technologies, however, to assess fraud or data flaw risks and potential liabilities before relying on them.

Ultimately, there are fundamental differences between an AVM and an appraisal. Our Designated Members bring a high level of quality and control that outvalues an AVM, and even in the pandemic, appraisers can use technology to help keep them safe, without technology cutting out all the benefit an appraiser brings to a valuation.

An AVM’s primary assets are relatively low cost and a comparatively quick turnaround time. But you get what you pay for. Think of an AVM as a piece of information about a property, which is based on various public records or multiple listing service data, and little else. Often, both sources have incorrect, outdated, and unconfirmed data that reduces the reliability of the information. AVMs are completely unable to inspect a property to determine quality and condition. They also cannot evaluate complex issues, such as whether a property faces any economic or physical obsolescence that might dramatically impact the salability and value of that home.

A home purchase is a serious undertaking and deserves accuracy and detail that only an expert appraiser can bring. Appraisers use their experience and education to determine which comparable sales to use and what adjustments, if any, to make. They are trained to apply the most applicable methodology when generating an opinion of value, and that training helps ensure a property’s value isn’t above – or below – what it should be. Appraisers dedicate themselves to being lifelong learners – and are constantly learning about the new trends and policies in appraisals through required courses and volunteer trainings.

Appraisal Institute professionals with the MAI, SRA, AI-GRS or AI-RRS designations provide demonstrated knowledge well beyond the minimum that licensing, or certification implies. Tools can be helpful, but secondary, to a well-trained appraiser’s education, experience and ethics.

Buying or selling a home is most people’s largest financial transaction – and knowing the true value of a property is crucial in setting prices or making offers that credibly reflect the specifics of a single home within the market. AVMs such as the “Zestimate” perform most accurately on homes with few updates or upgrades, such as floor plans and in communities where there are many houses of the same style. Yet, what they miss are the details – details that expert human appraisal will identify and which can be the reason why a home’s value is higher, or lower, than its neighbors. The closer you zoom in, from a city to a community, to a block, to your home – the less reliable an AVM model gets.

Even in the pandemic, we continue to believe that a traditional appraisal with a full inspection by our highly-trained Designated Members is the gold standard of security for all parties involved in a real estate transaction. At the Appraisal Institute, we stand by our appraisers, and the significant value they provide to lenders and consumers.