A commercial appraisal report can run sixty pages or more. Somewhere inside it sit the three approaches to value. Lenders often skim past them. Borrowers rarely read them at all. But those three sections carry the whole argument behind the number on the cover page.
By the end of this article, you’ll know:
What the sales comparison, cost, and income approaches each measure
Why an appraiser might omit one, and what that omission tells you
How reconciliation turns three indications into one opinion of value
What the Three Approaches to Value Actually Are
Appraisal practice rests on three ways of looking at the same building. The sales comparison approach asks what similar properties sold for. The cost approach asks what it would cost to build the property today, less depreciation, plus the land. The income approach asks what the property earns, and what an investor would pay for that income.
None of the three is decorative. Federal banking regulators expect each one to be considered. The Interagency Appraisal and Evaluation Guidelines state that an appraisal must include any approach that is applicable and necessary to the assignment, and that the appraiser should disclose the rationale for omitting one. So a missing approach is not a shortcut. It is a judgment the appraiser has to defend in writing.
The Sales Comparison Approach: What Similar Buildings Sold For
This one feels familiar because it is how residential work is usually done. The appraiser finds recent sales of comparable properties, then adjusts them for differences in location, size, age, condition, and terms of sale.
Commercial work makes that harder. There may be four warehouse sales in a submarket over two years, not forty. So the appraiser widens the search area, reaches further back in time, and adjusts more heavily. The unit of comparison changes by property type too. Industrial and office usually trade on price per square foot. Apartments often trade on price per unit. Self-storage trades on price per door.
When good sales exist, this approach carries real weight because it reflects what buyers actually paid. When they do not exist, the appraiser says so and leans elsewhere. Our commercial appraisal services cover office, retail, industrial, mixed-use, and special-purpose assignments, and the comparable pool looks different in every one.
The Cost Approach: What It Would Take to Build It Again
The cost approach starts with land value, adds the cost to construct the improvements new, then subtracts depreciation. Depreciation comes in three forms: physical wear, functional problems such as a bad floor plan or low ceiling height, and external factors such as a declining submarket.
This approach does its best work on new or nearly new buildings, where depreciation is small and easy to support. It also earns its keep on special-purpose property. A fire station, a church, a school, or a wastewater plant may have almost no comparable sales and no rental market. Cost may be the only credible path to value.
On a forty-year-old office building, the picture is different. Estimating depreciation across four decades involves a great deal of judgment, so the cost approach usually supports the conclusion rather than driving it.
The Income Approach: What the Property Earns
For income-producing property, this is normally the main event. Buyers of an apartment building or a leased industrial box are buying a cash flow. The appraisal should reflect that.
There are two common methods. Direct capitalization divides one year of stabilized net operating income by a market-derived capitalization rate. Discounted cash flow projects income over a holding period, then discounts it back to present value. Direct capitalization suits stable, leased property. Discounted cash flow suits property with lease rollover, a lease-up period, or step rents that change the income pattern over time.
Either way, the analysis is only as good as the inputs. The rent roll, the operating expenses, the vacancy assumption, and the rate all have to be supported by market evidence rather than by the owner’s optimism.
Reconciliation Is a Judgment, Not an Average
At the end of a commercial appraisal, three approaches may produce three different numbers. The appraiser does not average them. Averaging would treat weak data and strong data as equals.
Instead the appraiser reconciles. That means weighing the quantity and quality of evidence behind each indication, then explaining which approach carries the most weight and why. On a stabilized multi-tenant building, the income approach usually leads. On a newly built special-use facility, the cost approach may lead. On owner-occupied space in an active market, sales comparison may lead.
If you read only one part of a commercial appraisal, read the reconciliation. It tells you what the appraiser trusted, what the appraiser discounted, and how much support sits behind the final number. A reconciliation that simply asserts a conclusion without explaining the weighting is a fair thing to question.
Need a Commercial Appraisal That Shows Its Work?
PahRoo delivers commercial appraisals with the reasoning visible, so lenders, owners, and counsel can see exactly how the value was reached.
The sales comparison approach, the cost approach, and the income approach. Sales comparison looks at what similar properties sold for. Cost looks at what it would take to build the property new, less depreciation, plus land. Income looks at what the property earns and what an investor would pay for that income.
Which approach matters most for commercial property?
For income-producing property such as apartments, offices, retail, and leased industrial, the income approach usually carries the most weight. For special-purpose property with few comparable sales, the cost approach often leads. The appraiser explains the weighting in the reconciliation.
When is the cost approach used in a commercial appraisal?
It is most useful for new or nearly new construction, where depreciation is small, and for special-purpose properties such as schools, churches, and utility facilities that have almost no sales or rental market. On older income property it usually supports the conclusion rather than driving it.
How do appraisers reconcile the three approaches?
They weigh the quantity and quality of evidence behind each indication of value, then explain which approach deserves the most weight for that property and assignment. Reconciliation is a reasoned judgment, not a mathematical average of the three numbers.
Can an appraiser use only one approach to value?
Yes, when the others are not applicable or necessary, but the appraiser must disclose the reasoning for leaving them out. Federal appraisal guidance expects any applicable approach to be developed, and expects an explanation whenever one is omitted.
Talk to an Appraiser Who Will Explain the Reconciliation
PahRoo Appraisal & Consultancy has appraised commercial property across Chicago and Cook County for more than two decades, along with Dallas-Fort Worth, Philadelphia, Phoenix, and Naples. Our commercial assignments run from single-tenant industrial to mixed-use and special-purpose property, and every report explains how the approaches were weighed. You can review our full real estate appraisal services, read common questions on our appraisal FAQ page, or call 773-388-0003 to discuss an assignment.
Every attorney and lender asks the same question in the first phone call. How long does a commercial appraisal take? The honest answer is two to four weeks for most assignments, and the range is wide for real reasons.
By the end of this article, you’ll know:
A realistic timeline range by property type and complexity
The five things that actually slow a commercial assignment down
What to send on day one so the clock starts immediately
How Long Does a Commercial Appraisal Take in Practice?
In practice, most commercial appraisals take two to four weeks from engagement to delivered report. A simple single-tenant building in an active market can land closer to ten business days. A multi-tenant property with a complicated rent roll, or a special-purpose facility with almost no comparable sales, can run five to eight weeks.
That spread is not padding. The report has to be built, not filled in. There is no commercial equivalent of a standardized residential form, so the appraiser designs the analysis around the property in front of them.
Why Commercial Work Takes Longer Than Residential
Residential appraisals benefit from deep sales data and a common report format, because the sheer volume supports both. Commercial work has neither.
The appraiser sets the depth of the assignment under the Scope of Work Rule in the Uniform Standards of Professional Appraisal Practice, which requires the research and analysis to be sufficient for credible results. In practice that means confirming sales with parties to the transaction, reading leases, building an income analysis, and researching zoning and highest and best use. Each of those steps depends on someone else answering a phone or an email.
The Five Things That Drive the Timeline
So turnaround is mostly a function of these five factors, and they compound:
Property type and complexity. A single-tenant retail box moves faster than a mixed-use building with ground-floor retail, upper-floor apartments, and a parking deck.
Data availability. Illinois is a non-disclosure state for many transactions, so sale prices often have to be confirmed directly rather than pulled from a public record.
Access and inspection scheduling. Tenant-occupied space needs notice. One uncooperative tenant can hold up an inspection by a week.
Owner-supplied documents. A missing rent roll or an incomplete operating statement stops the income approach cold.
Assignment purpose. Litigation, estate, and partnership work often needs a retrospective date of value, which means researching market conditions as they stood on a past date.
What to Send on Day One
In practice, the fastest assignments are the ones where the file arrives complete. So gather the documents before the engagement letter is signed. Send the current rent roll, two to three years of operating statements, and copies of all leases and amendments. Then add a survey or plat, the legal description, any environmental or engineering reports, recent capital expenditure records, and the property tax bill.
Attorneys can help their clients here more than they realize. Chasing a lease amendment in week three is the single most common reason a commercial report slips. Sending it in week one usually saves five to seven days on the back end.
Rush Assignments Are Possible, Within Limits
Yes, commercial appraisals can be expedited when the calendar demands it. Availability and price both move, and a rush engagement should be discussed before the deadline gets tight rather than after.
But some things cannot be compressed. Inspection access still depends on tenants. Sale confirmations depend on brokers returning calls. An appraiser cannot shorten the research and analysis below what credible results require, and no competent appraiser will. If your matter has a court date or a closing, work backward from it and start the conversation early. A week of lead time is worth more than any rush fee.
Working Backward From a Deadline?
Tell us the property and the date you need the report, and we will give you a straight answer on timing before you commit.
Most commercial appraisals take two to four weeks from engagement to delivered report. Simple single-tenant properties in active markets can finish in about ten business days. Multi-tenant and special-use properties can take five to eight weeks.
Why do commercial appraisals take longer than residential ones?
There is no standardized commercial form, comparable sales are fewer and often have to be confirmed directly, and the appraiser has to analyze leases, income, expenses, zoning, and highest and best use. Each of those steps depends on outside parties responding.
Can you rush a commercial appraisal?
Expedited assignments are often possible, and both availability and fee will reflect that. Some steps cannot be compressed, including tenant inspection access and confirmation of comparable sales. Discuss a tight deadline before engaging rather than after.
What information speeds up a commercial appraisal?
Send the current rent roll, two to three years of operating statements, all leases and amendments, a survey and legal description, environmental or engineering reports, capital expenditure records, and the property tax bill at the start of the assignment.
Does a retrospective date of value take longer?
Usually yes. A retrospective appraisal requires researching market conditions, rents, and sales as they existed on a past date, which takes more work than analyzing current conditions. Litigation, estate, and partnership assignments often need this.
Start the Timing Conversation Before the Deadline Tightens
PahRoo Appraisal & Consultancy works regularly with commercial lenders, CRE attorneys, and CPAs on deadline-driven assignments across Chicago and Cook County, Dallas-Fort Worth, Philadelphia, Phoenix, and Naples. If you need a scoping conversation first, you can request a preliminary consultation, review our commercial appraisal services, or contact our team at 773-388-0003.
Appraisers on Purpose | Season 9, Episode 1 | Bruce Jones, MAI | 56 minutes | May 21, 2025
Most appraisers will go an entire career without appraising a going concern property correctly, and a fair number will do it wrong without ever finding out. Bruce Jones, MAI, has spent the last decade teaching the courses that fix that, and in this episode he lays out the analysis that separates the real estate from the equipment from the business.
If you have ever taken a restaurant, a car wash, a gas station, or a hotel assignment and reached for your standard commercial template, this conversation is about why that template produces the wrong number.
Bruce came out of college a finance major who wanted to be a financial planner, sat through a few interviews that turned out to be whole life insurance pitches, and took a friend up on an offer to try real estate instead. He stayed sixteen years: six as a residential agent, ten on the commercial side. By the end he was New Jersey broker of record for a company large enough that a publicly traded firm later acquired it.
What moved him was a cash out refinance on a property he owned, two houses on one lot, one 2,100 square feet and one 1,600. The appraiser arrived and warned him the only comparable he could find was a small duplex a couple of miles away. Its two units rented at roughly $650 and $700. Bruce was collecting $2,000 and $1,600. He sent the appraiser away and ordered a different one.
The course that started it
In 1997 he sat in a graduate level appraisal course taught by an attorney who was also an MAI. The instructor held up the ninth edition of The Appraisal of Real Estate and called it the Bible.
“So it is not about whoever expresses their opinion with the most force. No, there is actually a rule book. And I thought, that is kind of cool.”
Coming from brokerage, where the loudest opinion often wins, the existence of a standard was the draw. He did not act on it for another seven years. He entered the appraisal field in 2004 by partnering with an MAI to form a joint brokerage and appraisal company, which let him keep earning as a broker while logging his hours.
Bruce took his MAI coursework at Rutgers on weekends, then drove six or seven hours to Pittsburgh for the final course because New Jersey was not offering it. He finished the entire curriculum before sitting for state certification, which made the state exam easy, and passed the comprehensive on the first attempt.
The demonstration report took two years. He went to a week-long workshop in Texas built to get candidates started, and the instructor asked how many people in the room of about twenty had been working toward the MAI for a decade with only the demonstration report left. A quarter of the hands went up. Then he asked who had been at it for twenty years. Four or five hands.
Bruce chipped away at it every morning before work for two years and got it done. Within a year of earning the designation he opened his own firm, in 2011.
Dodd-Frank, AMCs, and the decision to go somewhere else
The timing was rough. Dodd-Frank arrived in 2010, and the relationships Bruce had built with small and mid-sized banks across the tri-state area went progressively to appraisal management companies. The market he knew reorganized itself around fee and turn time.
In 2014, partly out of frustration, he signed up for a business valuation course in Texas run by the International Society of Business Appraisers. It ran two weeks. He and the rest of the class were up past midnight reading to keep pace, which he notes was not his habit as a man normally in bed by 9:30.
Sitting next to a fellow attendee from Miami, the light went on for both of them when the instructor got to the excess earnings method.
The U.S. Treasury Department developed the excess earnings method in the wake of Prohibition. Breweries had lost enormous business value and were writing it off, and Treasury needed a way to separate the value of the business from the value of the real estate.
Business appraisers largely regard it as a poor method, too subjective to defend. Bruce wrote an article on exactly that tension, opening with quotes from well known business valuation professionals criticizing the method, and submitted it to NACVA. That same criticized method is what real estate appraisers now use to appraise going concern properties.
Mechanically, excess earnings are the earnings left over after the tangible assets have received a return on and return of investment. Total revenue is conceptually split three ways: a stream that supports the real estate, a stream that provides a return on and of the equipment, and whatever remains. The remainder supports the business.
Bruce is clear that this is an iterative process rather than a formula you run once. If nothing is left over for the business, the answer is not that the business is worthless. The answer is that the whole pie has to shrink, because the business has to clear enough to be sustainable. He compares it to a shopping mall after the anchors leave. Asking what the mall is worth on a price per square foot basis misses the question entirely.
“The value of the real estate and also the value of the equipment is based on its contribution to the enterprise. It is not the sticks and the bricks.”
Every real estate appraisal turns on highest and best use. A business appraiser cannot perform it. Not will not, cannot: no data, no training, no license.
“Business appraisers cannot do highest and best use for real estate. They cannot. They do not have the data, they do not have the training, they do not have the license.”
Bruce’s example: a restaurant clearing roughly half a million a year, sitting on three and a half acres that CVS would like to have. A real estate appraiser sees the answer immediately. The highest and best use may be to knock it down. A business appraiser working alone will never get there.
Which cuts both ways. A real estate appraiser using the excess earnings method has to be able to analyze the business, then turn the corner and ask what the site would be worth cleared. Competency in one discipline is not enough in either direction, and Bruce’s position is that these assignments need an interdisciplinary approach rather than two specialists working independently.
Why old restaurants keep becoming urgent care clinics
Restaurants built twenty to twenty five years ago commonly ran 7,000 to 8,000 square feet. New construction now averages around 3,500.
That is a functional obsolescence problem sitting across a very large inventory of buildings. Bruce has watched older restaurants get bought and converted to medical facilities, and watched others get split, with half becoming an urgent care and half staying a restaurant. Owners are right sizing the box.
Teaching the courses, and the literature catching up
Bruce teaches both American Society of Appraisers courses on valuing going concern properties, three and a half days each, and has done so for three years. His students are mostly experienced appraisers, twenty to forty years in, who have never handled these property types, and they come from across the country and increasingly from outside it.
The question he hears most often in class is who has the template set up. There is not one, because the analysis is different. Conceptually he does not think it is that complicated. You just have to look at it differently, which is harder than it sounds when you have run the same approach for thirty years.
He also notes that the appraisal literature took a long time to catch up. Earlier editions of The Appraisal of Real Estate handled going concern poorly, including the thirteenth, which was current when the course he now teaches was written. By his read the fifteenth edition finally gets it right.
Bruce has now appraised in 18 states, having started out wanting to work in his own county and the two or three next to it. He jokes that friends call looking for local comps and he has not worked in his own area in a long time.
The mechanism was not marketing. He has written eight or nine articles and says he should post more. What built the practice was a small core of people who knew him from his institutional work, where he had appraised complex property types including charter schools, plus a few reports in circulation that demonstrated what he could do.
The harder part was capacity discipline.
“I had to stop bidding on the little stuff, and basically keep myself available so that when I got those calls, I had the time and had plenty of bandwidth.”
Bruce’s referral flow comes largely from brokers and mortgage brokers working on financing that covers the business, the equipment, and the real estate together. They come to him because a wrong number on these property types is expensive, and because selecting on fee and turn time does not account for competency.
His observation on the lending side deserves attention. Many real estate appraisers instinctively frame the question as what the property is worth if the business goes dark. That is not what a sophisticated lender is underwriting. The lender is underwriting the likelihood that this operator keeps servicing the mortgage, which depends on revenue clearing enough to support the real estate and still leave the operator a living.
Bruce has been retained by Orange County, Florida to rebut business appraisers in hotel tax appeal matters, part of the wave that followed the early Disney cases. The pattern he describes is a real estate appraisal paired with a business appraiser opining that hundreds of thousands of dollars of hotel value is intangible, produced without the two disciplines collaborating.
That work is what has him energized for the next several years, and it puts the whole argument in one place. When the analysis crosses disciplines and nobody bridges them, the number comes out wrong and somebody has to prove it.
About Bruce Jones
Bruce Jones, MAI, is a New Jersey based appraiser specializing in going concern and special use properties. Sixteen years in real estate brokerage came first, including a decade on the commercial side as a New Jersey broker of record, before he entered the appraisal profession in 2004. The MAI designation followed, and in 2011 he founded [CONFIRM: firm name].
His work now spans 18 states. Bruce teaches both American Society of Appraisers courses on valuing going concern properties, and Orange County, Florida has retained him in hotel tax appeal matters. His published articles cover the application of the excess earnings method to real property assignments.
The file that does not fit your template
Bruce’s students ask who has the template set up. There is not one, because the analysis is different. That is true of more than going concern work.
When a file crosses into territory that needs an analysis you do not run every day, a contested tax appeal, an estate where the heirs do not agree, a matter heading toward testimony, you have two options. Turn it down, or hand it to a firm that will take it and give the client back to you.
PahRoo takes complex and contested assignments from other appraisers. Cook County tax appeals in front of the Assessor and Board of Review. Estate and trust matters. Divorce and marital property division. Partition actions. Litigation support where the report gets read by someone looking for a reason to throw it out.
You keep the client. You stay the point of contact.
A going concern appraisal values a property where the highest and best use is continued operation of the real estate together with a business and, usually, its equipment. Restaurants, car washes, gas stations, and hotels are common examples. The appraiser has to determine what portion of the enterprise revenue supports the real estate, what portion supports the equipment, and what remains to support the business, rather than valuing the physical components on their own.
What is the excess earnings method?
The excess earnings method separates the value of a business from the value of the real estate by identifying earnings in excess of what the tangible assets require to receive a return on and return of investment. It was developed by the U.S. Treasury Department after Prohibition to help breweries account for lost business value. It is closely related to the parsing of income method, with the difference being that the excess earnings method prioritizes the real estate first.
Can a business appraiser determine highest and best use?
No. Highest and best use analysis requires real property data, training, and licensure that business appraisers do not hold. This is why going concern assignments benefit from an interdisciplinary approach, with the real estate appraiser and the business appraiser collaborating rather than working independently. A site’s highest and best use may be redevelopment even while a profitable business operates on it, and only a real estate appraiser can reach that conclusion.
Do I need a business valuation designation to appraise going concern properties?
Not necessarily, but you do need competency in analyzing a business, not just a template. The American Society of Appraisers offers two courses on valuing going concern properties, each running three and a half days. Coursework gets you started rather than making you proficient. As with real property appraisal generally, competency develops through practice, not from a licensing class.
Why can’t I use my standard commercial template on a restaurant or gas station?
Because the analysis is different. A general purpose property template values the physical components, typically on a price per square foot basis. A going concern property derives the value of both the real estate and the equipment from their contribution to the enterprise. Starting from the sticks and bricks produces the wrong number and misses the possibility that the site is worth more cleared than it is occupied.
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Appraisers on Purpose features appraisers and industry professionals talking about how they built their careers, what they learned, and what they are doing now for their teams, their clients, and the profession. Hosted by Michael Hobbs, President of PahRoo Appraisal & Consultancy.
The first time a borrower opens a commercial appraisal report, the reaction is usually the same. Why is this ninety pages long? The length is not padding, and most of those pages exist because a regulator, a court, or a credit committee needs them there.
By the end of this article, you’ll know:
What each major section of a commercial appraisal report contains
What highest and best use means and why it comes before the value
Which pages to read first if you only have ten minutes
What a Commercial Appraisal Report Contains
A narrative commercial appraisal report normally includes these sections, roughly in this order:
Letter of transmittal and summary of salient facts. The conclusion, the effective date, and the key property details on one or two pages.
Scope of work. What the appraiser did, and what the appraiser did not do.
Property identification and legal description. Address, parcel numbers, ownership history, and current use.
Regional, market, and submarket analysis. Supply, demand, rents, vacancy, and new construction.
Site and improvement description. Zoning, utilities, access, construction, condition, and functional layout.
Highest and best use analysis. As vacant and as improved.
The approaches to value. Sales comparison, cost, and income, as applicable.
Reconciliation and final opinion of value.
Certification, assumptions, limiting conditions, and addenda. Including the appraiser’s credentials and the supporting exhibits.
Scope of Work Sets the Rules for Everything After It
The scope of work section is short, and it governs the rest of the document. It states what the appraiser inspected, what data was researched, which approaches were developed, and what was excluded.
Federal banking guidance treats this as a matter of substance rather than formality. The Interagency Appraisal and Evaluation Guidelines state that regardless of the report option used, the report should contain enough detail for the institution to understand the scope of work performed, including research that was typically warranted but omitted, along with the reason. So if you want to know how much weight a report can carry, start here.
Highest and Best Use Is the Question Behind the Number
This is the section that surprises people, and it does real work. Highest and best use asks what the reasonably probable and legally permissible use of the property is, given what is physically possible and financially feasible, that produces the highest value.
The appraiser answers it twice. First as though the site were vacant, then as the property is currently improved. Those answers can differ. An older single-story building on a corner zoned for four stories may be worth more as a redevelopment site than as the building standing on it today.
The answer shapes everything downstream. It determines which comparable sales are relevant, which income stream is analyzed, and whether demolition costs belong in the math. Change the highest and best use conclusion and the value changes with it.
The Approaches, the Reconciliation, and the Certification
The approaches to value take up the largest share of the page count, because each one shows its supporting data. The sales comparison approach includes a grid with adjustments explained. The income approach shows the rent roll analysis, expense reconstruction, vacancy assumption, and the derivation of the capitalization rate. The cost approach shows land value, cost figures, and depreciation.
Reconciliation follows. The appraiser weighs the indications and explains which approach carries the most weight for this property. Then comes the certification, where the appraiser states that the analysis complies with professional standards, that the compensation was not contingent on the value reached, and that no undisclosed interest exists in the property.
The assumptions and limiting conditions matter too. An extraordinary assumption, for example that a property is free of environmental contamination absent a report, can materially affect the conclusion. Read those before relying on the number.
Which Pages to Read First If You Only Have Ten Minutes
Start with the summary of salient facts, then jump to three places. Read the scope of work to see what was and was not done. Read the highest and best use conclusion to see what use the value assumes. Read the reconciliation to see which approach the appraiser trusted and why.
Then check the extraordinary assumptions and hypothetical conditions. Those four stops will tell you more about the reliability of a commercial appraisal report than reading the adjustment grids front to back. If something in those sections does not match the transaction you are underwriting, that is the moment to ask the appraiser a question, not after the loan closes.
A Report Your Credit Committee Can Actually Follow
PahRoo writes commercial appraisals that hold up under lender review, audit, and cross-examination, with the scope and reasoning stated plainly.
A transmittal letter and summary of facts, the scope of work, property identification, market and submarket analysis, site and improvement description, highest and best use analysis, the applicable approaches to value, reconciliation, and the certification with assumptions and addenda.
What is a narrative appraisal report?
A narrative report presents the analysis in written form rather than on a standardized form. Commercial assignments use narrative reports because each property is different and the reasoning behind the value has to be explained rather than checked off.
Why are commercial appraisal reports so long?
Because each approach to value shows its supporting data, and because lenders, regulators, and courts need enough detail to follow the reasoning. Market analysis, highest and best use, adjustment grids, income analysis, and exhibits all add pages.
What is highest and best use?
It is the reasonably probable use of a property that is legally permissible, physically possible, and financially feasible, and that produces the highest value. Appraisers analyze it both as though the site were vacant and as the property is currently improved.
What is an appraisal certification?
A signed statement in which the appraiser confirms compliance with professional standards, discloses any interest in the property, and confirms that the fee was not contingent on reaching a particular value. It also identifies who provided significant assistance.
Ask for a Report That Explains Itself
PahRoo Appraisal & Consultancy prepares narrative commercial appraisal reports for lenders, attorneys, CPAs, and property owners in Chicago and Cook County, Dallas-Fort Worth, Philadelphia, Phoenix, and Naples. Every report states its scope, its highest and best use conclusion, and its reconciliation in language a reader can follow. Learn more about our commercial appraisal services, browse our appraisal FAQ page, or call 773-388-0003.
A marital home buyout looks simple from the outside. One spouse keeps the house, pays the other for their share, and everyone moves on. The hard part is the number. Get it wrong and the deal falls apart or a lender walks. A marital home buyout appraisal fixes that number to defensible market value, which is why both sides, and the bank behind the refinance, tend to start there.
By the end of this article, you’ll know:
How a buyout figure is actually calculated
Why the lender needs an independent appraisal
What can shift the number, and who usually pays for the report
What a Marital Home Buyout Appraisal Does
A buyout appraisal is an independent opinion of the home’s current market value, prepared by a licensed or certified appraiser. That value is the anchor. Everything else in the buyout, the equity, each spouse’s share, the size of the refinance, builds off it.
Bankers care because the buyout usually runs through a refinance. The new loan pays off the old mortgage and funds the cash going to the departing spouse. The appraised value sets the loan-to-value, so it decides whether the deal is even financeable. Attorneys care because that same number has to hold up in the settlement.
How the Buyout Is Calculated
The math is short once you have a credible value. Here is the sequence most buyouts follow:
Start with the appraised market value. This comes from the independent appraisal, not a listing estimate.
Subtract the mortgage payoff and any liens against the property. What remains is the net equity.
Subtract agreed costs, if the court allows them. Some settlements deduct estimated costs of sale, others do not.
Split the net equity per the settlement. Illinois divides marital property in just proportions, which is not always a 50/50 cut.
Pay the departing spouse their share. The spouse keeping the home funds it, usually through a refinance.
In short form: buyout amount equals appraised value, minus the mortgage payoff, times the departing spouse’s equity share. Under 750 ILCS 5/503, that share reflects what the court finds equitable, so the split is a legal decision while the value is an appraisal one.
Why Buyouts Are So Common Right Now
Rates are the reason. The 30-year fixed has held in the mid-6% range through 2026, according to Freddie Mac, well above the lows many couples locked in a few years ago. Selling the home and each buying again means trading a cheap mortgage for an expensive one, twice.
So keeping the house through a buyout often beats selling. That makes the appraised value the pivot point of the whole settlement. If the number is soft, the departing spouse feels shortchanged. If it is inflated, the refinance may not appraise out, and the deal stalls.
What Can Move the Number
Condition, recent sales, and the effective date all matter. A home that has been neglected during a long separation may appraise lower than either spouse expects. A fast-moving local market can shift the value between the offer and the closing. So a buyout appraisal is a snapshot tied to one date, and a stale one invites a challenge.
This is where a defensible report earns its fee. The appraiser documents the comparable sales and the reasoning, so the number survives a skeptical spouse, an opposing attorney, or a lender’s review.
Start the Buyout With a Real Value
Order the appraisal before the negotiation hardens, not after. Confirm the appraiser is licensed, works to recognized standards, and can support the effective date the case needs. Then build the buyout off that figure. It is far easier to agree on a split when nobody is arguing about the value underneath it.
Need a Buyout Number That Holds Up?
PahRoo prepares independent, USPAP-compliant appraisals that set a defensible buyout figure for the settlement and the refinance behind it.
Start with the appraised market value, subtract the mortgage payoff and any liens to get net equity, then split that equity per the settlement. The spouse keeping the home pays the departing spouse their share, usually funded by a refinance. The appraisal sets the starting number the whole calculation rests on.
Do you need an appraisal for a marital home buyout?
In most cases, yes. A buyout needs a defensible market value, and if a refinance funds it, the lender requires an appraisal anyway. An informal estimate can work only when neither spouse contests the value and no lender is involved, which is rare in a real buyout.
Who pays for the buyout appraisal?
It varies. The spouses often split the fee, the party who orders it pays, or the court allocates the cost. Many couples share one neutral appraisal rather than commissioning two competing reports, which saves money and avoids a battle over whose number is right.
How long is a buyout appraisal valid?
There is no fixed expiration, but the value is tied to a specific effective date. Lenders and courts generally want a recent appraisal, often within the last few months. In a moving market, an older figure gets questioned, so timing the report close to the buyout matters.
Can one spouse force the sale of the home?
That is a legal question for the court, not the appraiser. A court can order the home sold if an equitable division requires it, or it can approve a buyout that lets one spouse keep the house. Either way, the appraisal supplies the market value the decision runs on.
An as-is appraisal is an opinion of value based on your property exactly as it stands today, deferred repairs and all. No promises about work you might do later. Just the house as it sits on the effective date. For a homeowner facing pre-foreclosure, that single number often carries more weight than any other document in the file.
By the end of this article, you’ll know:
What an as-is appraisal measures, and how it differs from a subject-to value
Why homes in pre-foreclosure are almost always valued as-is
How to put that number to work with your lender, attorney, or agent
What an as-is appraisal actually values
An as-is appraisal answers one question. What is this property worth right now, in its current condition? The appraiser inspects the home, rates its condition, and researches recent sales of similar properties. Peeling paint, a dated kitchen, a roof near the end of its life: all of it stays in the picture. Nothing gets erased or assumed away.
That matters because most other valuations quietly assume a cleaned-up house. A lender’s automated estimate does not see your water-stained ceiling. An agent’s list price often bakes in repairs you have not made. An as-is number does not flatter the property. It reflects what a buyer would actually pay for it today, which is exactly why the figure is useful when the stakes are high. Our real estate appraisal services page walks through how we build these reports.
As-is vs. subject-to: two different numbers
The counterpart to as-is is a subject-to appraisal. A subject-to value assumes certain repairs or improvements get finished. Think of it as the “after” value once the work is done.
Appraisers rely on two tools here, both defined by the Uniform Standards of Professional Appraisal Practice. An extraordinary assumption treats something uncertain as if it were true, like assuming a furnace works when we could not test it. A hypothetical condition values the home as if something false were real, like a finished basement that is still framed studs. The Appraisal Institute guide notes spell out how each one gets disclosed.
So one property can support two very different values. As-is reflects today. Subject-to reflects a future that may or may not happen. In a pre-foreclosure sale, the as-is figure is usually the honest one, because those repairs are not going to get done first.
Where FHA fits, and where it does not
FHA loans add a wrinkle. When a buyer uses FHA financing, the appraisal has to confirm the home meets HUD’s Minimum Property Requirements, which is HUD’s way of saying safe, sound, and secure. If the property clears that bar with only minor wear, the appraiser can report it as-is.
When there is a real health or safety problem, the rules change. A broken window, exposed wiring, or a failing furnace usually forces a subject-to appraisal, meaning the value assumes those items get repaired first. The HUD Handbook 4000.1 lays out these requirements, and the lender, not the appraiser, decides which repairs are mandatory.
One point causes confusion. A client cannot simply instruct an appraiser to ignore FHA repair items on a financed purchase. So if you are selling to an FHA buyer, plan for those repairs to surface. If the sale is a cash or conventional deal, an as-is report is often the right fit.
Why pre-foreclosure homes get appraised as-is
Homes heading toward foreclosure tend to share a pattern. Money got tight, so maintenance slipped. The furnace limped along and the roof went another season. By the time the property needs a value, it rarely shows well.
That creates a real challenge for the appraiser. The cleanest comparable sales are often homes in better shape. So we adjust. We look at the cost to cure each deficiency, then we test how the market actually reacts to that condition, and we bring the comparable values down to match the subject. Buyers discount a tired house by more than the raw repair bill, and a credible report captures that.
The result is a defensible as-is value: the price a real buyer would pay, supported by real sales. That kind of report holds up when a lender, a judge, or an opposing party pushes back. Our team handles foreclosure and distressed-property appraisals with that scrutiny in mind.
How to put an as-is value to work
An appraisal will not stop a foreclosure. What it does is give you an accurate number to make decisions around, and something solid to hand the people who can help.
A few common uses. In a short sale, an independent as-is value helps you and your agent price the home so the lender approves it. A low, well-supported figure can also back your case when you ask the bank to accept less than the balance owed. In a loan modification or deed-in-lieu, it shows the servicer what the collateral is really worth. And if the bank’s own valuation came in oddly high or low, a full appraisal gives you grounds to push back.
Foreclosure decisions are legal and financial ones, so loop in a HUD-approved housing counselor or an attorney early. Our job is the value. We give you a clear, USPAP-compliant number you can stand behind, whatever path you choose. If you are weighing your options, start by finding out what your home is truly worth today.
Not sure what your home is really worth right now?
Whether you are pricing a short sale, answering a lender, or just weighing your options, an independent as-is appraisal gives you solid ground to stand on.
An as-is appraisal is an opinion of value based on the property’s current condition, with no assumption that repairs or upgrades will be made. It reflects what a buyer would pay for the home exactly as it stands on the inspection date.
Is an as-is value lower than a repaired value?
Usually, yes. If a home needs work, its as-is value sits below its subject-to (repaired) value. The gap reflects both the cost to cure the problems and how much buyers discount a property in that condition.
Can I get an as-is appraisal if I am behind on my mortgage?
Yes. Homeowners in pre-foreclosure, short sales, and loan workouts often order an independent as-is appraisal. It gives you and your advisors an accurate value to negotiate around. An appraisal does not stop foreclosure, but it supports better decisions.
Does an FHA appraisal have to be subject-to repairs?
Only when the property fails to meet HUD’s Minimum Property Requirements for health and safety. If the home is safe, sound, and secure with only minor wear, an FHA appraisal can be completed as-is. The lender decides which repairs are required.
Who uses an as-is appraisal in a distressed sale?
Homeowners, real estate agents, lenders, and attorneys all rely on it. It helps set a short-sale price, respond to a servicer’s valuation, or support a loan modification or deed-in-lieu request.
Know Your Home’s Value Before You Decide
PahRoo Appraisal & Consultancy is a Chicago-based firm on the FHA appraiser roster, with more than two decades valuing homes across Cook County and beyond. We handle foreclosure and short-sale appraisals, divorce and estate work, and everyday residential valuations with the same care. When the number has to hold up, we are ready to stand behind it. Have questions first? Get in touch.
Ask three people in a deal what a cap rate is and you may get three answers. The cap rate in commercial real estate is one number doing a lot of work, and misreading it is how owners end up surprised by an appraisal.
By the end of this article, you’ll know:
How a cap rate is calculated and what it actually measures
Where appraisers get cap rates, and why survey averages are not enough
Why a small move in the rate produces a large move in value
What a Cap Rate Is in Commercial Real Estate
A capitalization rate is the ratio of a property’s net operating income to its value. It expresses, as a percentage, the annual return a buyer would receive on the purchase price before financing and before taxes.
Think of it as the market’s price tag on risk and growth. A stable building leased to a strong tenant on a long lease trades at a lower cap rate, because buyers accept a smaller return for a safer income stream. A half-empty building in a soft submarket trades at a higher cap rate, because buyers demand more return for taking on more uncertainty.
The IRS describes the same logic in its guidance on valuing real estate. Publication 561 explains that the capitalization of income method capitalizes net income at a rate representing a fair return on the particular investment at the particular time, considering the risks involved. Risk is baked into the rate.
How to Calculate a Cap Rate
The formula is short. Cap rate equals net operating income divided by value or price.
Say a small retail building generates $450,000 of net operating income after operating expenses, and it sells for $6,000,000. Divide $450,000 by $6,000,000 and you get 7.5 percent. That is the cap rate the market paid.
Run it the other way and you have the direct capitalization method appraisers use. Take the property’s stabilized net operating income, divide by a market cap rate, and you have an indication of value. The arithmetic is simple. Getting the two inputs right is the hard part.
Where Appraisers Actually Get Cap Rates
Not from a headline. A published national survey rate is a sanity check, not evidence. An appraiser derives cap rates from confirmed comparable sales in the same submarket, for the same property type, at roughly the same point in the cycle.
That means finding sales, confirming the price with a party to the transaction, reconstructing the income the buyer was actually purchasing, and then extracting the rate. In a non-disclosure state like Illinois, that confirmation work takes real time. It is also what separates a supported rate from a guess.
Appraisers also cross-check the derived rate against other methods, including band of investment and debt coverage analysis, and against investor surveys for the property type. When those checks disagree, the appraisal should say so and explain the resolution.
Why a Lower Cap Rate Means a Higher Value
Because the rate sits in the denominator. Hold income constant and the value moves inversely with the rate.
Take that same $450,000 of net operating income. At a 6.5 percent cap rate the indicated value is about $6.92 million. At 7.5 percent it is $6.0 million. At 8.5 percent it drops to roughly $5.29 million. The income never changed. A 200 basis point shift moved the value by more than $1.6 million.
This is why owners sometimes feel blindsided by a refinance appraisal. Their rents held up, their building is full, and the value still fell. Rising interest rates push required returns up, cap rates follow, and values compress even when operations are fine.
What a Good Cap Rate Really Means
There is no universally good cap rate. A 5 percent rate on a well-located apartment building and a 9 percent rate on a single-tenant industrial building with three years of lease term left can both be entirely rational. The rate reflects the risk the market sees in that specific income stream.
So the useful question is not whether your cap rate is high or low. It is whether the rate applied to your property is supported by comparable sales of similar property in your submarket, and whether the income being capitalized is the income a buyer would actually receive. If either input is unsupported, the value is unsupported too.
One caution worth stating plainly. An appraiser derives cap rates to reach an opinion of market value, not to advise you on whether to buy, sell, or hold. Investment strategy belongs to you and your advisors. The appraisal establishes value.
Is Your Cap Rate Supported by Real Sales?
PahRoo derives capitalization rates from confirmed submarket transactions, then shows the derivation in the report so you can check the work.
Divide the property’s net operating income by its value or sale price. A building with $450,000 of net operating income that sells for $6,000,000 has a cap rate of 7.5 percent. Reversing the formula gives an indication of value from income.
What is a good cap rate?
There is no single good rate. A low rate signals a safer, more desirable income stream, while a higher rate signals more risk or less growth. What matters is whether the rate applied to your property is supported by comparable sales in your submarket.
Why do cap rates go up when values fall?
The cap rate is the denominator in the value calculation. When buyers demand a higher return, often because financing costs or perceived risk have risen, the same net operating income supports a lower price. Income can stay flat while value declines.
Where do appraisers get cap rates?
Primarily from confirmed sales of comparable properties in the same submarket and property type, with the income the buyer purchased reconstructed for each sale. Investor surveys, band of investment, and debt coverage analysis serve as cross-checks.
Does the cap rate include debt service?
No. The cap rate is applied to net operating income, which is calculated before mortgage payments, income taxes, and capital expenditures. Two buyers with different loan terms would still analyze the same net operating income.
Have the Rate Checked Before You Rely on the Value
PahRoo Appraisal & Consultancy appraises income-producing property across Chicago and Cook County, Dallas-Fort Worth, Philadelphia, Phoenix, and Naples, with capitalization rates derived from confirmed transactions rather than borrowed from a survey. Explore our commercial appraisal services, see the full range of our real estate appraisal services, or call 773-388-0003 to talk through a property.
Two appraisers can look at the same marital home and reach different numbers, both correct. The reason is usually the date of value. Set it on one day and the house is worth one figure. Set it on another, and the number moves. In a divorce, that single choice can shift a settlement by thousands, which is why the date of value in a divorce appraisal deserves attention early, not after the report lands.
By the end of this article, you’ll know:
What the date of value is and why it changes the number
Which date Illinois courts generally use for the marital home
When a retrospective appraisal is the right tool
What the Date of Value Means in a Divorce Appraisal
The date of value, also called the effective date, is the exact day an appraiser’s opinion of value applies to. It is not always the day the appraiser visits the home. The appraiser can measure market value as of today, or as of a date in the past, and the report states which one it used.
This matters because markets move. Interest rates shift, inventory tightens, a neighborhood heats up or cools off. So a home worth one figure in the spring may carry a different figure by the fall. The Uniform Standards of Professional Appraisal Practice treat the effective date as a core part of the assignment, and a credible report ties every comparable sale back to it.
Which Date Illinois Courts Use
Illinois gives the court discretion here, but there is a strong default. Under 750 ILCS 5/503, marital property is generally valued as of the date of trial, or the date the marriage is dissolved, using a fair market value standard. The court can pick another date if the parties agree or if the facts call for it.
One rule trips people up. The separation date is usually not the valuation date. Value tends to keep accruing until the case is decided, so growth in the home’s worth between separation and trial often stays in the marital estate. Courts also avoid using different dates for different assets, which keeps the division consistent.
When a Retrospective Appraisal Comes In
Sometimes the question is not what the home is worth now, but what it was worth years ago. That is a retrospective appraisal. The appraiser sets a past effective date, such as the date of marriage, and reconstructs the market using sales that closed around that time.
This is often how a spouse traces separate property. If one party owned the home before the marriage, the value at the date of marriage helps separate premarital equity from the appreciation that built up during it. CPAs lean on the same figure to keep the tax and division math straight. So the choice of date is not a technicality. It decides what counts as marital in the first place.
How the Date Moves the Number
Picture a home that a couple bought near a market peak, then watched cool as rates climbed. An appraisal dated at filing might land higher than one dated at trial a year later. Neither is wrong. They answer different questions.
That gap is exactly why the effective date can become a bargaining point. A spouse hoping for a lower buyout may prefer a softer date, while the other pushes for the stronger one. The appraiser does not pick sides. But the attorney who sets the date early controls the terms of the fight instead of reacting to a number that already exists.
Set the Date Before You Order the Appraisal
Decide the effective date first, then order the work to match. If the case may need both a current value and a past one, say so up front, because a retrospective analysis takes different data. Confirm the appraiser can support the chosen date with real sales from that period, and can explain the choice if the report is challenged. Timing is a decision, so make it on purpose.
Need the Value Fixed to the Right Date?
PahRoo prepares both current and retrospective divorce appraisals, tied to the effective date your case needs and ready to defend.
The date of value, also called the effective date, is the specific day an appraiser’s opinion of value applies to. It fixes the moment the home’s market value is measured. Two appraisals of the same house with different effective dates can reach different numbers, because the market moves over time.
Does a home get appraised at the date of separation or the date of trial?
In Illinois, marital property is generally valued as of the date of trial or the date the marriage is dissolved, not the date of separation. Under 750 ILCS 5/503, the court has discretion to use the trial date or another date the parties agree to, so the separation date is usually not the valuation date.
What is a retrospective appraisal?
A retrospective appraisal estimates what a property was worth on a specific past date, such as the date of marriage. The appraiser reconstructs the market as of that date using sales that closed around then. It is common when tracing how much of a home’s value is separate versus marital property.
Can the chosen date change the settlement?
Yes. Because home values shift over time, the effective date can change the appraised value, and that changes the equity each spouse divides. In a fast-moving market, the gap between two candidate dates can be large enough to matter in a negotiation.
Can you appraise a home for a past date?
Yes. A licensed appraiser can prepare a retrospective appraisal with a past effective date, relying on comparable sales from that period rather than today’s market. The report states the effective date clearly, so everyone knows what point in time the value reflects.
Need an Independent Divorce Appraisal?
PahRoo Appraisal & Consultancy prepares current and retrospective valuations across Cook County and the wider Chicago area. For background on how we support attorneys and their clients, see our overview of appraisals in divorce proceedings and our residential appraisal services, or contact us to set the right effective date for your case.
One of our residential appraisers recently stood in a Chicago bedroom built in 1901 and noticed something missing. There was no closet. On a modern checklist, that looks like a problem. In a vintage home appraisal, it tells a story about how people actually lived.
By the end of this article, you’ll know:
Why homes built before the 1920s often have bedrooms without closets
Whether a room needs a closet to count as a bedroom
How market support saved a three-bedroom count after a renovation removed a closet
What a Vintage Home Appraisal Sees That a Checklist Misses
Plenty of people believe a room without a closet cannot be a bedroom. It is one of the most persistent myths in residential real estate. In fact, Fannie Mae’s appraisal guidance contains no closet requirement. A bedroom needs adequate size, ceiling height, privacy, heat, and a window or door for emergency egress. The closet rule comes from habit, not from the standards appraisers follow.
Still, habit shapes markets. Buyers expect closets, agents list rooms based on them, and an appraiser who treats every house like new construction will mark a closet-free room down without a second thought. That is where experience earns its fee. Our residential appraisal work across Chicago’s older housing stock means we read a 1901 floor plan on its own terms, then test that reading against real market evidence.
Why Homes Built in 1901 Rarely Have Bedroom Closets
In 1901, families did not organize their lives around hanging rods. Most clothing lived in wardrobes and large cedar trunks, often one trunk per person, parked at the foot of the bed. Some homes went a step further and built a single oversized cedar closet for the whole household. Individual bedrooms stayed small and simple, sized for a bed and a trunk and little else.
Chicago’s early twentieth century housing boom produced tens of thousands of these homes. The Chicago History Museum documents how bungalows and workers’ cottages filled the city’s neighborhoods as the population surged. Organizations like the Chicago Bungalow Association now work to preserve these layouts as a signature of the era. So when you walk into a vintage bedroom and find no closet, you are not looking at a defect. You are looking at 1901.
The Bathroom Addition That Nearly Erased a Bedroom
Now the story. The subject property was a three-bedroom home, built in 1901, with one and a half bathrooms. In 2025, the owners added a second full bathroom. Smart move on paper, because bathrooms carry real value in older housing stock. But the new bathroom took its space from a bedroom closet, which was removed entirely.
Here is the trap. Judged purely by modern convention, the home now reads as two bedrooms plus an office. That single reclassification can shift the comparable pool, the marketing story, and the final value. A renovation meant to add value would have quietly subtracted a bedroom instead. The owners had no idea. Most owners never do, because nobody warns them that a closet can carry that much weight on a report.
How Market Support Kept the Third Bedroom on the Report
Our appraiser did not simply declare the room a bedroom and move on. Sympathy is not a valuation method. Instead, she built the case. The home’s 1901 construction date placed it firmly in Chicago’s vintage stock, where closet-free bedrooms are a documented, common layout. Comparable vintage homes in the market sell as three-bedroom houses with the same configuration, and buyers in this segment accept the trade.
That is market support: a conclusion backed by evidence of how actual buyers and sellers behave, not by personal opinion. With the era established and the comparables in hand, the report could credibly carry the home as a three-bedroom. The bedroom count survived, the new bathroom added its value, and the renovation did what the owners intended. The difference between those two outcomes was never the house. It was the appraiser’s knowledge of what 1901 means.
What Owners of Older Chicago Homes Should Do Before an Appraisal
First, learn your home’s era before you remodel it. A change that seems harmless, like absorbing a closet into a new bathroom, can alter how a room is classified. Second, keep records of what your home originally looked like, because floor plans and old listing photos help an appraiser reconstruct the vintage layout. Third, and most important, choose an appraiser who knows your housing stock. A checklist can count rooms. Only experience can explain them. If your home was built before the 1920s, ask directly how the appraiser handles vintage layouts. The answer will tell you a lot.
Own a Vintage Home? Get an Appraiser Who Can Read Its Era
A 1901 floor plan deserves more than a modern checklist. PahRoo’s appraisers know Chicago’s vintage housing stock and back every conclusion with market evidence.
Does a bedroom need a closet to count in an appraisal?
No. Fannie Mae guidelines and the International Residential Code do not require a closet. A bedroom needs adequate size, ceiling height, a heat source, privacy, and a window or door for emergency egress. The closet rule is a common myth.
Why do older homes have bedrooms without closets?
Before the 1920s, most families stored clothing in wardrobes and cedar trunks rather than built-in closets. Many vintage Chicago homes also used one large shared cedar closet instead of individual bedroom closets. The layout reflects how people lived at the time.
Can a renovation lower my home’s appraised value?
It can. A renovation that removes a feature buyers expect, such as a bedroom closet, may change how a room is classified. Before you remodel an older home, consider what the change does to room count and functional utility, not just the new feature you gain.
What does market support mean in an appraisal?
Market support means the appraiser backs a conclusion with evidence from actual sales. If comparable vintage homes with closet-free bedrooms sell as three-bedroom houses, the market treats those rooms as bedrooms. The appraiser can then classify the subject home the same way.
Should I add closets to my vintage home before an appraisal?
Not automatically. In many vintage markets, buyers accept period layouts, and forcing modern closets into small rooms can hurt function. Talk with an appraiser who knows your local vintage housing stock before spending money on changes.
Need an Independent Appraisal?
PahRoo Appraisal & Consultancy has appraised Chicago’s housing stock for decades, from 1901 workers’ cottages to new construction. Whether you need a residential appraisal, an independent valuation for divorce proceedings, or simply a straight answer about what your vintage home is worth, our team is ready. Learn more about PahRoo or contact us today.
