In the grand hierarchy of real estate, appraisers, the folks who with measuring devices and Excel spreadsheets determine the worth of both the $1 million condo and the $1 billion skyscraper, occupy a relatively humble role. And yet the market presents the modest appraiser with perhaps the most existential dilemma in real estate: what is a property worth? It’s a surprisingly torturous question.
“There is a lot of pressure, a great deal of pressure on appraisers,” said Daniel Sciannameo, a 23-year veteran appraiser and president of Albert Valuation Group New York.
The problem for appraisers, particularly of big office buildings, is essentially this: how does one define a building’s worth if one has nothing to compare it to? Comparisons—or comparables, as they’re known in the business—are perhaps the most common tool for building appraisal, and they’re in remarkably short supply.
“It’s pretty tough, because there’s just been an absence of transactions in the marketplace by which to create benchmarks,” said Thomas Justin, executive vice president of The Weitzman Group.
In the absence of comps, appraisers try other techniques.
“You just try and get a sense through surveys of where people are buying today, and you also try to look at deals that have fallen apart,” Mr. Justin said.
And, you look at the building’s internal rate of return, though even that seemingly simple act is far from straightforward.
“It’s more and more difficult to find transactions on the leasing side,” said Keith Brenan, also of the Weitzman Group. And even if an appraiser does find a legitimate comp—a recent lease in a nearby building, or a big sale like the recent 1540 Broadway transaction— how much can he really rely on it?
As Mr. Justin put it, “The old rule of thumb is that one sale does not make a market.”