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Residential Appraisal
The Appraiser Stayed Outside. Is That Normal?

Maybe your lender said the appraiser won’t need to come inside. Or maybe you heard there won’t be an appraisal at all. A drive-by appraisal, a desktop appraisal and a hybrid appraisal each value a home with less time on site than a traditional appraisal. Some loans skip the appraisal entirely. This guide covers how each one works and when it’s worth asking for more.

By the end of this article, you’ll know:

  • What a drive-by, desktop and hybrid appraisal each include
  • Why some loans close with no appraisal at all
  • What the new appraisal report changes starting November 2

What a Drive-By Appraisal Includes

A drive-by appraisal is another name for an exterior-only appraisal. The appraiser visits the property but stays outside. They look at the house, the lot and the street, and they take photos. Then they fill in the interior details from public records, listing data and past reports. Our post on the types of home appraisals compares full, exterior and desktop appraisals.

Fannie Mae and Freddie Mac have long used a separate report for this, the Exterior-Only Inspection Residential Appraisal Report. It’s known as the 2055. It’s one of the older forms now being replaced, according to the Fannie Mae and Freddie Mac lender readiness kit.

The limitation is easy to see. An appraiser on the sidewalk can’t see a new kitchen, a finished basement or water damage. So the value leans on how accurate the records are. Either way, the appraiser has to state what was and wasn’t inspected. That disclosure is part of the national appraisal standards, as state appraiser regulators explain.

Desktop Appraisals Happen Without a Visit

A desktop appraisal skips the site visit completely. Under Fannie Mae’s desktop appraisal rules, the appraiser doesn’t inspect the home or the comparable sales in person. Instead, they work from records, listing data, photos, video and a floor plan. The homeowner or another party can supply some of that. Still, the appraiser has to verify it with a source that has no stake in the deal.

For a Fannie Mae loan, a desktop appraisal is only an option when all of these are true.

  • The home is a one-unit property, such as a house or a unit in a planned development.
  • You’ll live in it as your main home.
  • It’s a purchase, not a refinance.
  • The loan is 90% of the home’s value or less.
  • Fannie Mae’s automated underwriting system approves the loan.

Condos, second homes, investment properties and every type of refinance are left out. So if you’re refinancing, don’t expect a desktop appraisal on a Fannie Mae loan.

Hybrid Appraisals Split the Work in Two

A hybrid appraisal divides the job between two people. First, a trained third party visits the home and collects data on the inside and outside. Fannie Mae’s hybrid appraisal rules name real estate agents, insurance inspectors and appraisers as examples. Then a licensed appraiser uses that data to reach a value.

Hybrids cover more situations than desktops do. They can be used for purchases and refinances, including cash-out refinances. One-unit homes and condos qualify, and so do second homes and investment properties. Two- to four-unit buildings and manufactured homes don’t.

For you, the visit may feel a lot like a standard home appraisal. The difference is that the person walking through may not be the person who signs the report.

When the Lender Skips the Appraisal

Sometimes there’s no appraisal at all. Fannie Mae’s underwriting system can offer what it calls value acceptance. When the lender takes that offer, no appraisal is required. In general, Fannie Mae needs to already have a prior appraisal of the home in its data before it will consider this.

You may still hear the older name. This used to be called an appraisal waiver, but Fannie Mae dropped that term in its September 3, 2025 Selling Guide update. There’s also a middle option called value acceptance plus property data. In that case, someone collects information at the home, but nobody writes an appraisal report.

Skipping the appraisal can save time and a fee. It also means no appraiser has looked at this particular home for this loan.

What the New Appraisal Report Changes

Starting November 2, 2026, appraisals on loans sold to Fannie Mae and Freddie Mac move to a new format. The old numbered forms, including the exterior-only, desktop and hybrid versions, are replaced by one report. It’s called the Uniform Residential Appraisal Report. According to Freddie Mac’s FAQ on the redesign, that report supports traditional, hybrid, desktop and exterior appraisals. So all four types continue. The report simply labels which one it is, instead of using a different form number. Our article on the new appraisal report shows what changed on the page.

Some lenders got extra time, though. Fannie Mae and Freddie Mac offered a one-time policy exception that lets approved lenders keep sending the older format through May 19, 2027.

A Few Pointers for Loan Officers

If you’re a lender or loan officer, three things can save a borrower some confusion. First, don’t promise a desktop appraisal on a refinance, because Fannie Mae doesn’t allow one. Second, form numbers are going away, so the new report identifies the type by its valuation method instead. So your order should spell out which one you need. Finally, tell borrowers that desktop and exterior-only appraisals lean on records. If they added a bathroom or finished the basement, permits and accurate listing details are what the appraiser will see.

When You Order the Appraisal Yourself

Not every appraisal is for a mortgage. Homeowners also hire appraisers for inherited homes, divorces, tax appeals and private sales. Our guide on when you need a home appraisal covers each one. In those cases, the lender rules above don’t apply. Instead, the appraiser decides the scope of work, including how much of the property to inspect, based on how the appraisal will be used.

That’s why an exterior-only appraisal can sometimes work, for example when nobody can get inside a relative’s house. Even so, if the interior affects the value, say so up front. A recent remodel, an unfinished basement or storm damage can all move the number. If you’re in the Chicago area, our Chicago real estate appraisals page explains how ordering works.

Ask Which Type You’re Getting Before the Visit

Whether a lender orders the appraisal or you do, it’s fair to ask which kind it is and what the appraiser will actually see. Then you can share anything the records might miss, like recent upgrades or repairs. A short conversation before the visit usually means fewer surprises when the report comes back.

Not Sure Which Appraisal Fits Your Situation?

Tell us what the appraisal is for and what’s changed at the property. We’ll talk through what kind of inspection makes sense.

Ask About Your Appraisal

Frequently Asked Questions

Is a drive-by appraisal the same as an exterior-only appraisal?

Yes. Both terms describe an appraisal where the appraiser inspects the outside of the home but doesn’t go in. Interior details come from records, listing data and past reports.

Can I get a desktop appraisal for a refinance?

Not on a Fannie Mae loan. Fannie Mae limits desktop appraisals to purchases of one-unit homes you’ll live in, with a loan of 90% of the value or less.

What is value acceptance?

Value acceptance is Fannie Mae’s offer to approve a loan without an appraisal. It used to be called an appraisal waiver, and Fannie Mae retired that name in September 2025.

Who visits the home in a hybrid appraisal?

A trained third party, such as a real estate agent, insurance inspector or appraiser, collects data at the home. A licensed appraiser then uses that data to complete the appraisal.

Do these appraisal types still exist under the new report?

Yes. The new Uniform Residential Appraisal Report supports traditional, hybrid, desktop and exterior-only appraisals. The type is labeled inside the report instead of by a form number.

About PahRoo

PahRoo Appraisal & Consultancy is an independent appraisal firm based in Lincolnwood, Illinois, led by Michael Hobbs, MAI, SRA. We appraise homes and commercial property in Chicago and Cook County, Dallas-Fort Worth, Philadelphia, Phoenix and Naples. If you have a question about an appraisal you’ve been offered, email appraisal@pahroo.com or call 773-388-0003.

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Partially leased retail strip center being appraised for a commercial refinance
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Commercial AppraisalsEstate Planning
What to Expect From a Commercial Refinance Appraisal

Thinking about refinancing a building you own? Before a lender sets the new loan amount, it needs a supported opinion of what the property is worth today. That is the job of the commercial refinance appraisal, and it shapes how much you can borrow, how much cash you can take out, and sometimes whether the deal works at all.

By the end of this article, you’ll know:

  • How the appraised value sets the size of a refinance loan
  • Who orders the appraisal, and when a new one may not be needed
  • What owners and lenders can do to keep the process moving

How a Commercial Refinance Appraisal Sets Your Loan Amount

Lenders look at two things in a refinance. First, can the property’s income cover the payment? Second, is the building worth enough to secure the loan? According to the Interagency Appraisal and Evaluation Guidelines, the ability to repay comes first. Still, a bank must also consider the value of the real estate behind the loan.

That value usually caps the loan through a loan-to-value limit in the lender’s policy. Consider a hypothetical. A lender caps the loan at 70 percent of value, and your building appraises at $3,000,000. The most it would lend is $2,100,000. If you still owe $2,300,000, you would need to bring $200,000 to closing or find another lender.

So a few percent in value can move real money. That’s why it helps to understand what goes into the number before the appraiser shows up.

Your Lender Orders the Appraisal, Not You

This part surprises a lot of owners. The bank picks and engages the appraiser, and federal guidance says it can’t use a report the borrower ordered. Our article on commercial appraisals for lending covers those independence rules in detail.

For a refinance, the practical point is simple. An appraisal you order yourself can help you decide whether refinancing makes sense before you talk to lenders. It just won’t stand in for the appraisal the bank orders for the loan.

When a Refinance May Not Need a New Appraisal

Some refinances skip the full appraisal. Under the OCC’s appraisal rule at 12 CFR 34.43, an existing loan at the same bank can be refinanced without one in either of two cases. In the first, no new money goes out beyond reasonable closing costs. In the second, nothing obvious and material has changed in the market or the property that threatens the bank’s collateral.

The same rule exempts commercial real estate deals of $500,000 or less. In both cases, though, the bank still needs an evaluation, which is a simpler written estimate of market value. A bank can also order a full appraisal anyway, and the guidelines point that way for higher risk loans.

Two more points matter here. Moving the loan to a new lender takes it outside the existing loan exemption, since that exemption only covers credit already at the lending bank. And a cash-out refinance adds new money, so it qualifies only if the market and the property haven’t materially changed. The FDIC and the Federal Reserve have parallel rules for the banks they supervise, and credit unions follow the NCUA’s version.

What Moves the Value of a Leased Building

For most income property, the appraiser leans hard on the income. Our guide to the income approach shows how rent turns into value. Our explainers on net operating income and cap rates cover the two numbers that drive it.

Leases count too. The federal guidelines require lending appraisals to analyze deductions and discounts for partially leased buildings and non-market lease terms. So a half-empty building, or a big tenant paying well under market rent, will show up in the number.

Time plays a part as well. The guidelines list factors that can make an older appraisal stale, including the passage of time, changes in financing terms, lack of maintenance, and shifts in cap rates and lease terms. In other words, what your building was worth at purchase may not be what a refinance lender sees today.

Who occupies the building matters too. If your own company fills the space, our piece on owner-occupied and investment property appraisals explains why the two get valued differently.

How Owners Can Prepare for the Appraisal

You can’t pick the appraiser, but you can make the work go smoother. Have a current rent roll, every lease with its amendments, recent operating statements, and a list of capital improvements ready before the inspection. Our lending article above has a fuller checklist.

A refinance adds one more step. Find your last appraisal and write down what has changed since. A new roof, a lease renewal at a higher rent, or a tenant who moved out are exactly the facts that decide whether the old value still holds. So hand them to your lender early, before anyone has to ask.

One thing to leave out is a target value. The guidelines tell lenders not to give an appraiser a predetermined value, a loan amount, or a target loan-to-value ratio. For what happens next, see what goes into a commercial appraisal report and how long a commercial appraisal takes.

For Lenders, Set Up the Refinance Assignment Right

Bankers already know the ordering rules, and our lending article covers them. A refinance adds two decisions of its own.

First, decide whether the existing appraisal still holds. The guidelines let a bank use an existing appraisal for a later transaction. However, the credit file should show the facts and analysis behind that call, weighed against the staleness factors listed above. So document the check, even on a renewal with no new money that is exempt from a new appraisal.

Second, match the value premise to the new loan. If cash-out proceeds fund a renovation or a lease-up, the guidelines say a bank would generally ask for the as-is value. As applicable, it would also ask for a prospective value upon completion or stabilization.

If the building sits outside Cook County, our Dallas, Philadelphia, Phoenix, and Naples teams take commercial assignments in those markets. In Cook County, our Chicago appraisal team handles the work.

Planning a Refinance on a Building You Own?

Your lender orders the appraisal behind the loan. If you want a supported value first, to plan or before you talk to lenders, PahRoo can prepare one. Bankers can engage us for refinance assignments too.

Request a Commercial Appraisal Quote

Frequently Asked Questions

What is a commercial refinance appraisal?

It is an appraisal a lender uses to decide how much it will lend on a new loan secured by income-producing or business property. The appraised value usually caps the loan through the lender’s loan-to-value limit.

Can my bank reuse the appraisal from when I bought the building?

Sometimes. A bank can rely on an existing appraisal for a later loan if it documents why the value still holds. The passage of time, lease changes, or a shift in cap rates can make an older value stale.

Does every commercial refinance need a new appraisal?

No. For an existing loan at the same bank, federal rules may allow an evaluation instead when no new money goes out or when the market and property haven’t materially changed. The bank decides which it needs.

What should I have ready for a commercial refinance appraisal?

A current rent roll, every lease and amendment, recent operating statements, and a list of capital improvements. Plan for access to the whole building, including vacant space.

Does a cash-out refinance need a new appraisal?

Not always. At the same bank, a cash-out refinance can skip a new appraisal only if nothing obvious and material has changed in the market or the property. Otherwise it generally needs one, or an evaluation for smaller loans.

Refinance Appraisals That Hold Up in Credit Review

When a lender needs a value it can underwrite, PahRoo Appraisal & Consultancy prepares commercial appraisals for banks, investors, and owners in Chicago and Cook County, Dallas, Philadelphia, Phoenix, and Naples. Michael Hobbs, MAI, SRA, signs our Illinois reports. See our commercial appraisal services for the property types we cover.

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Two printed pages of a new appraisal report on a wooden desk
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Residential Appraisal
Your Appraisal Report Looks Different Now

If you’re buying or refinancing a home this fall, the appraisal your lender sends you may not look like the one you got last time. Starting November 2, 2026, most appraisals for loans sold to Fannie Mae and Freddie Mac move to a new appraisal report. The work behind it is the same. The paperwork just reads differently.

By the end of this article, you’ll know:

  • Why your appraisal report looks different starting this November
  • What changed on the page and what stayed the same
  • Why some loans will still get the old version for a while

Why the New Appraisal Report Is Showing Up Now

For years, mortgage appraisals came on a set of fixed forms. A house had one form, a condo had another, and a small rental building had a third. Anything extra went into a free-form addendum at the back.

Fannie Mae and Freddie Mac are replacing that system. According to Freddie Mac’s UAD 3.6 FAQ, the two companies are retiring more than a dozen older forms. One redesigned Uniform Residential Appraisal Report, or URAR, takes their place. You may also see the name of its data standard, UAD 3.6, in lender emails.

The new report becomes the rule for new appraisals submitted on or after November 2. Still, lenders could start using it in January, so you may have seen one already.

What Looks Different on the Page

The biggest change is that the report now follows your home instead of a form number. Freddie Mac says the property’s own data drives the report. So a condo, a bungalow with a coach house, and a two-flat all use the same report, and it adjusts to what the property actually has.

It may also feel more familiar. Freddie Mac says the redesigned report has a similar look and feel to the loan application and the Closing Disclosure you already sign. The old General Addendum also disappears. Instead, the appraiser’s comments sit inside each section, right next to the details they explain.

Condition and quality ratings got clearer definitions. The report can now rate the inside and outside of a home separately, which helps when one is in much better shape than the other. Accessory units, like a coach house, also show up in a more consistent way.

Finally, if your loan officer ever called it “a 1004,” that label is on its way out. The form numbers retire along with the forms.

See What the New Appraisal Report Looks Like

Reading about a report only goes so far, so here’s how to see one. Fannie Mae publishes sample reports on its UAD webpage. Scroll to the UAD Documentation section and choose Appendix D-1, URAR Sample Scenarios and XML Files. It downloads as a zip file, and each sample inside comes as a PDF.

If you only open one, start with the sample labeled SF5. Fannie Mae calls it the best example of a typical, straightforward appraisal in the new format. Two others, SF3 and SF4, show a home with an accessory unit, one in a separate building and one in the basement.

Still, don’t expect yours to match the samples exactly. The report only shows what applies to your home and the work the appraiser did, so no two will look the same.

What Stays the Same

This redesign changes the report’s layout and the way it’s delivered. Freddie Mac says the purpose of the report has not changed. It is still an appraiser’s opinion of value for a mortgage decision. The condition and quality rating scale is also the same, even though Fannie Mae and Freddie Mac rewrote its definitions.

The new format also covers every kind of assignment. It handles a full inspection, a hybrid, a desktop, or an exterior-only appraisal. Our guide to the types of home appraisals explains how those differ.

You also keep the right to see it. The CFPB explains that for a first-lien mortgage, your lender must give you a free copy. It has to arrive promptly after the appraiser finishes and no later than three days before closing. If this is your first appraisal, our home appraisal process guide walks through each step.

Why Some Loans Will Still Get the Old Version

Not every report switches on the same day. The rule depends on when the report is first submitted to the Fannie Mae and Freddie Mac portal, not on when you applied for the loan.

Some lenders also asked for more time. Under the published transition timeline, a lender with an approved exception can keep sending the old format until May 19, 2027.

Government-backed loans run on their own schedule. FHA began accepting the new format on October 1, 2026. But lenders can still send FHA appraisals in the old one, and FHA has not set a mandatory date. VA and USDA set their own timelines as well.

So if you refinance in December and the report looks like the old version, that’s not a mistake. It may just be your lender’s timing or your loan type.

For Lenders, the Submission Date Is What Counts

If you’re a lender or loan officer, the real risk sits in your pipeline. The mandate follows the first UCDP submission date, so an old-format report ordered in October but submitted after November 2 needs an exception.

Three habits help. First, state UAD 2.6 or 3.6 in the engagement letter, which is where Freddie Mac says the appraiser should find it. Second, match formats on follow-up work. UCDP won’t accept mixed standards under one Doc File ID, so an update or completion report has to match the original. For FHA cases, keep one format for every submission on a case number.

Third, mark March 1, 2027 on the calendar. If you’re working under an exception, UAD 2.6 reports lose collateral rep and warranty relief for value from that date.

Reading Your Report When It Arrives

Give the new layout a few minutes before you judge it. Find the opinion of value first. Then check the basics, like the address, square footage, and the number of bedrooms and bathrooms. If something looks wrong, raise it with your lender, since the appraiser prepared the report for the loan. A clear question about a specific fact is easier to resolve than a general worry about the number.

Need an Appraisal Outside the Mortgage?

Selling, settling an estate, dividing a home in a divorce, or questioning a tax bill? You can hire PahRoo directly for those. Tell us about the home and what the value is for.

Request a Home Appraisal

Frequently Asked Questions

What is the new appraisal report?

It’s the redesigned Uniform Residential Appraisal Report, or URAR, from Fannie Mae and Freddie Mac. It replaces more than a dozen older appraisal forms with one report that adjusts to the property.

What is UAD 3.6?

UAD 3.6 is the data standard behind the new report. It is required for new appraisals submitted to Fannie Mae and Freddie Mac on or after November 2, 2026, though lenders with an approved exception can use the old format until May 19, 2027.

Does the new appraisal format change my home’s value?

The format changes how the report is organized and delivered. Freddie Mac says the report’s purpose has not changed, and the condition and quality rating scale is the same. Your value still comes from the appraiser’s analysis of your home and your market.

Do FHA and VA loans use the new appraisal report?

FHA started accepting it on October 1, 2026, but has not set a mandatory date, so lenders can still use the old format for FHA loans. VA and USDA set their own schedules.

Will I get a copy of my appraisal?

Yes. For a first-lien mortgage, your lender has to give you a free copy promptly after it’s completed and no later than three days before closing.

A Chicago Team Already Working in the New Format

PahRoo Appraisal & Consultancy appraises homes and condos for homeowners, lenders, and attorneys across Chicago and Cook County, and our residential team already produces reports in the new format. Michael Hobbs, MAI, SRA, signs our Illinois reports. See our Chicago appraisal services to learn how we work.

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Chicago six-flat apartment building valued in a commercial real estate divorce appraisal
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Divorce Appraisal
How Commercial Property Gets Appraised in a Divorce

A divorce with a six-flat, a strip center, or an office condo on the balance sheet needs more than a house appraisal. A commercial real estate divorce appraisal values the building the way investors do, by what it earns and what buyers pay for that income. For divorce attorneys, that changes what you ask for at engagement and what you can defend later.

By the end of this article, you’ll know:

  • Why commercial property needs a different appraisal than the marital home
  • How the valuation date, the leases, and the business affect the number
  • What CPAs should line up for the tax side of the split

Why a Commercial Real Estate Divorce Appraisal Works Differently

Most marital homes get valued mainly from recent sales of similar houses. A rented building is different, because the rent is a big part of what a buyer is paying for.

So the appraiser looks at more than sales. Federal banking guidelines sum up the USPAP rule well. According to the Interagency Appraisal and Evaluation Guidelines, an appraisal must include each approach to value that applies, whether sales comparison, income, or cost. It also has to explain any approach it leaves out. Our guide to the three approaches to value covers how each one works.

In a leased building, that usually puts real weight on the income. Our article on the income approach for commercial property shows how rent becomes a value.

Illinois also sets the standard the report has to meet. Under 750 ILCS 5/503, the court uses a fair market value standard. It also has to make specific factual findings on values. So the report should support a number a judge can actually write into those findings.

Settle the Valuation Date Before the Appraiser Starts

Illinois gives the court room on timing. Under Section 503, the valuation date is the date of trial or another date the parties agree to or the court orders. That flexibility matters more for a building than for a house.

Commercial values move with leases and capitalization rates. The federal guidelines list changes in cap rates and lease terms among the things that can make an older appraisal stale. A tenant leaving, or a lease renewing at a new rent, can shift the number between filing and trial.

So agree on the date, or ask the court to set it, before the work begins. If that date has already passed, the assignment becomes a retrospective appraisal as of the earlier date. Our piece on the date of value problem in divorce explains why timing moves value, and our explainer on cap rates shows how small rate changes add up.

Other states handle valuation dates their own way. If the building sits in another market we serve, our Dallas, Philadelphia, Phoenix, and Naples teams appraise under that state’s rules. In Cook County, our Chicago appraisal team handles the work.

Leases Can Raise or Lower What the Building Is Worth

A building with tenants comes with its leases. A long lease at below-market rent can hold value down for years. An above-market lease with a strong tenant can do the opposite, at least until it ends.

Lenders already watch for this. The federal guidelines require lending appraisals to account for partially leased buildings and non-market lease terms. A divorce file raises the same facts, so the report should compare each lease with market rent and show the effect.

Also watch for leases between family entities. If the couple’s own company rents the space, the rent may not match the market. The appraiser can report what market rent would be, and counsel can decide what that means for the case. We cover that setup in more detail in our article on the family business’s real estate.

Keep the Building Separate From the Business

A building and the business inside it are two different assets. The federal guidelines draw the same line for lenders. They say going concern value and value in use may not stand in for market value, and any such opinion has to be identified separately.

That matters when one spouse runs a restaurant, clinic, or shop in a building the couple owns. The real estate appraisal should value the land and building only. Any business value belongs with a business valuator, and the two reports should not count the same dollars twice. Our conversation on going concern appraisal with Bruce Jones, MAI covers how appraisers think about that split.

Ownership through an LLC raises a related point. PahRoo values the real estate itself. What a spouse’s share of that LLC is worth can be a separate question, so confirm early who is answering it.

For CPAs, the Same Value Can Carry Different Tax Results

Federal tax rules usually let a building pass between divorcing spouses without immediate gain or loss. Under Treasury Regulation 1.1041-1T, that applies to transfers incident to divorce. The spouse who receives the building also takes the other spouse’s adjusted basis.

So two buildings with the same appraised value may not be equal after tax. Consider a hypothetical. Building A and Building B each appraise at $2,000,000. Building A has an adjusted basis of $600,000, and Building B has $1,800,000. On a later sale at that price, Building A would show $1,400,000 of gain, while Building B would show $200,000.

Illinois courts can weigh this too, since Section 503 lists the tax consequences of the division as a factor. A few steps help. First, ask the transferring spouse for basis and holding period records, which the regulation says the transferor must supply. Second, match the appraisal’s effective date to the business valuation date when both assets are in play. Third, get the appraiser the rent roll, the leases, and three years of operating statements early.

What to Put in the Engagement Letter

Start with the intended use and the intended users. The federal guidelines note that an engagement letter identifies both, as USPAP defines them, and that sets who can rely on the report. Then state the valuation date, the property interest, and whether you expect testimony. Illinois courts can also bring in their own financial experts under Section 503, and counsel may examine a professional the court designates as its witness. A tight engagement letter gives you a report that is easier to defend if the other side attacks its scope.

Dividing a Commercial Building in the Divorce?

PahRoo appraises the real estate on its own, with the valuation date, the leases, and the property interest spelled out. Tell us about the building and the date the case needs.

Order a Commercial Appraisal

Frequently Asked Questions

How is commercial property appraised in a divorce?

The appraiser considers the sales comparison, income, and cost approaches and uses each one that applies. For a leased building, the rent and the leases usually drive much of the analysis.

What valuation date does an Illinois divorce use?

Under 750 ILCS 5/503, it is the date of trial or another date the parties agree to or the court orders. Settle the date before the appraisal starts.

Do tenant leases change a building’s value in a divorce?

Yes. A lease above or below market rent can raise or lower value, so the report should compare each lease with market rent.

Does a commercial real estate appraisal include the business?

No. It values the land and building. A business operating there, or a spouse’s share of an LLC that owns the building, is a separate valuation question.

Is transferring a building between divorcing spouses taxable?

Generally not at the time of transfer. Under Treasury Regulation 1.1041-1T, the receiving spouse takes the other spouse’s adjusted basis, so the gain can show up on a later sale. A tax advisor should confirm the details.

Commercial Appraisals for Family Law Cases

PahRoo Appraisal & Consultancy appraises commercial and investment property for family law attorneys and CPAs in Chicago and Cook County, Dallas, Philadelphia, Phoenix, and Naples. Michael Hobbs, MAI, SRA, signs our Illinois reports. See our commercial appraisal services to learn how we work.

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Suburban hotel whose business value is separated from the real estate in a tax appeal
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Property Tax
How Business Value in Tax Appeals Can Raise Your Tax Bill

When a hotel, gas station, or golf course appeals its assessment, the first question is what the number is really taxing. These properties earn money from a business that runs inside the building, and that income can drift into the value of the real estate. For property tax attorneys, sorting out business value in tax appeals is usually the center of the case.

By the end of this article, you’ll know:

  • Why operating properties carry more than real estate in their numbers
  • How appraisers pull franchise, management, and FF&E value out of a hotel
  • What gas station, golf course, and hotel files need before the appeal

Why Business Value in Tax Appeals Shows Up on Operating Properties

Most commercial property gets valued from the rent its space earns. Hotels, gas stations, and golf courses work differently, because their revenue comes from a business operating on the property.

That revenue reflects the land and buildings. But it also reflects a brand, a management team, equipment, and contracts. In most places, the assessment should reach only the first part.

An IAAO committee guide on intangible assets makes the same point. It notes that in most jurisdictions, intangible assets are not taxable as part of the real estate assessment. It also sorts all property into three types, real property, tangible personal property, and intangible property.

So the appraisal question is narrow. What is the real estate worth with the business taken out? Bruce Jones, MAI, covers that split in our Appraisers on Purpose episode on going concern appraisal.

What Illinois Taxes and What It Leaves Out

Illinois draws part of the line in its constitution. Article IX, Section 5 required the General Assembly to abolish all ad valorem personal property taxes by January 1, 1979. So the assessment covers real property. The Property Tax Code defines that as land, buildings, structures, improvements, and other permanent fixtures (35 ILCS 200/1-130).

The value standard is fair cash value. Section 1-50 of the code ties it to a sale between a willing buyer and a willing seller, not under duress. A franchise, a management contract, and movable equipment have no place in that number.

Still, where an item falls is not always clean. Permanent fixtures count as real property, and Section 24-5 keeps items in the class they held before 1979. Whether a fuel canopy or a built-in kitchen is real or personal property is a legal call for counsel and the board. The appraiser measures each piece once that call is made.

Other states draw these lines in their own ways. If your clients own operating properties in more than one market, PahRoo also appraises in Dallas-Fort Worth, Philadelphia, Phoenix, and Naples, under each state’s rules. In Cook County, our Chicago appraisal team handles the local work.

How Appraisers Take a Hotel Apart

Hotels get valued from their operating income, so the business has to come out of the math. The common tool is the management fee method, often called the Rushmore approach. The appraiser deducts a management fee and a franchise fee as expenses. Then a reserve and a return on the furniture, fixtures, and equipment take the FF&E out.

Not everyone thinks that goes far enough. Some appraisers argue that workforce, start-up costs, and other intangibles need their own deductions, an approach often called business enterprise value. The IAAO guide, written for assessors, favors the fee method and notes that courts have mostly disallowed those extra deductions. In practice, expect the method itself to be contested.

A recent Illinois decision shows the fee method at work. In a 2023 Property Tax Appeal Board decision on a 74-room hotel in Rantoul, the taxpayer’s MAI appraiser reconciled the property at $6,100,000. The appraiser then deducted $455,000, made up of $250,000 tied to the FF&E and $205,000 tied to the business through its franchise and management fees. That left $5,645,000 for the real property.

The assessment reflected about $6.77 million, and PTAB reduced it to the appraised figure. One caveat applies here. The appraisal was the only market value evidence in that record. For how the underlying income model works, see our guide to the income approach for commercial property.

Gas Stations and Golf Courses Need Their Own Split

A gas station with a convenience store mixes real estate with a retail business. The IAAO guide notes that properties earning revenue from a business on site, such as minimarts, often sell with intangible business assets included in the price. Supply contracts and franchise agreements also appear on its list of potential intangible assets. So a sale price or an income figure may carry more than the site and its buildings.

Golf courses blend the same way. Under the IAAO guide, objects permanently affixed to land or buildings usually count as real estate, while customer relationships and contracts sit on its list of potential intangible assets. A course’s improvements fall on one side of that line, and its member relationships and operating contracts fall on the other. The guide lists both convenience stores and golf courses among property types that may carry intangible value.

For these properties, the cost approach makes a useful cross-check. It builds value from land and improvements, so it leaves the business out by design. The IAAO guide notes that courts have often favored it when intangibles complicate the income approach. Sales still matter too, but each comparable sale should be checked for what the price included. Our piece on special use property appraisal covers why these buildings have so few clean comparables.

For Hotel Owners, Pull These Records Before the Appeal

If you own a hotel and your attorney is preparing an appeal, the appraiser will need more than a profit and loss statement. Start with the franchise agreement and the management agreement, since the fees in them drive the deductions. Then pull three years of operating statements with management, franchise, and reserve expenses on their own lines.

Next, build a list of the furniture, fixtures, and equipment with purchase dates and costs. If you bought the hotel, find the purchase price allocation and any IRS Form 8594 filed for the sale. The IAAO guide points to that form as evidence of how a price was split.

Finally, if the hotel is in Cook County and you run it yourself, ask your attorney whether the Board of Review treats it as owner occupied. A Board of Review appeal checklist says owner-occupied commercial property needs an appraisal completed within the past three years.

Settle the Split Before the Hearing Date

For attorneys, the useful move is to agree on the allocation method with the appraiser at engagement, not after the board’s evidence arrives. Ask which method will handle the business and the FF&E, whether a cost approach will back it up, and how each comparable sale was verified. Those answers shape the record you carry from the Board of Review to PTAB. A reduction is never guaranteed, but a clean split gives the board something it can test.

Is the Assessment Taxing the Business Too?

PahRoo appraises the real estate on its own, with the business and FF&E pulled out and every deduction shown. Tell us about the property and the tax year under appeal.

Isolate the Real Estate

Frequently Asked Questions

Is business value taxed in an Illinois property assessment?

Illinois taxes real property. Its constitution required ad valorem personal property taxes to end by 1979, so the business, its contracts, and its movable equipment should stay out of assessed value. How a specific item gets classified is a question for counsel and the board.

What is the Rushmore approach in hotel tax appeals?

It values a hotel from operating income after deducting a management fee, a franchise fee, and charges for furniture, fixtures, and equipment. The appraiser treats what remains as the income the real estate earns.

Why are hotels, gas stations, and golf courses hard to assess?

Their income comes from a business run on the property, not from rent. An appraiser has to separate what the land and buildings earn from what the brand, management, and equipment earn.

Can the cost approach help in a business value appeal?

Yes, as a cross-check. It builds value from land and improvements, so it leaves the business out by design. It works best alongside income and sales evidence.

What records does a hotel owner need for a tax appeal appraisal?

Start with the franchise and management agreements, three years of operating statements with fees on their own lines, an FF&E list with costs, and any purchase price allocation from a recent sale.

Real Estate Values Built for the Appeal Record

PahRoo Appraisal & Consultancy appraises commercial and special use property for property tax attorneys and owners across Cook County and the Chicago area. Michael Hobbs, MAI, signs our Illinois reports and is available to testify on them. See our commercial appraisal services and our Chicago appraisal coverage.

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Business owner in the loading bay of the light industrial building her company occupies, the subject of an owner-occupied appraisal
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Commercial Appraisals
Why Owner-Occupied and Investment Property Appraisals Differ

Two buildings sit side by side, same size, same age, same street. One is full of your own company. The other houses a tenant you have never met. An owner-occupied appraisal and an investment property appraisal can land on different numbers for these two buildings. The reason has less to do with the bricks than with the question the appraiser answers.

By the end of this article, you’ll know:

  • Why the appraiser uses market rent on a building you occupy and the actual leases on a building you rent out
  • How a below-market or above-market lease moves value, with a worked example
  • Why the value of your business stays out of the real estate number, and what lenders should tell the appraiser up front

What an Owner-Occupied Appraisal Actually Values

When you own the building and run your business in it, nobody is paying rent. So there is no lease for the appraiser to read. Instead, the appraiser asks a simpler question. What would this space rent for if it hit the open market tomorrow?

That figure is market rent. It comes from comparable leases on similar buildings nearby, adjusted for size, condition, and location. The appraiser then builds an income approach on that rent. Sales of similar buildings come in too, and sometimes a cost approach.

Here the appraiser usually values the fee simple interest. In plain terms, that means full ownership with no lease attached. Since no tenant holds any rights, the value rests on what the market would pay for the building itself. Our guide to the income approach for commercial property walks through how that rent becomes a value.

Investment Property Starts With the Leases

Once you rent a building to someone else, the leases become part of what you own. Now the appraiser reads them closely. The rent a tenant actually pays is contract rent. It may or may not match market rent.

If the leases run at market, the two numbers line up and the gap is small. But leases signed years ago often drift. A tenant paying well under market holds a bargain that the owner cannot take back until the lease ends. A tenant paying above market adds income, though only as long as that tenant can keep paying.

Federal appraisal rules for bank loans address this directly. Under 12 CFR 34.44(d), appraisals for federally related transactions must analyze deductions and discounts for non-market lease terms. Partially leased buildings get the same treatment. So the appraiser cannot just assume every lease is at market. Each one gets tested.

A Hypothetical Building, Valued Two Ways

Consider a hypothetical 20,000-square-foot light industrial building in a Chicago suburb. We invented every figure below for illustration.

First, assume the owner’s company occupies all of it. Comparable leases suggest market rent of $10 per square foot, net. That gives $200,000 a year in potential rent. Take out 5 percent for vacancy and collection loss, and you have $190,000. Then subtract $10,000 for costs a landlord would typically absorb, such as management and reserves. Net operating income comes to $180,000. At a 7.5 percent capitalization rate, the indicated value is $2,400,000.

Now change one fact. An unrelated tenant leases the same building at $8 per square foot. Six years remain on the lease. Contract rent is $160,000 a year. That is $40,000 a year below market, every year, until the lease ends.

The appraiser has to account for that shortfall. In this case, the leased fee value would likely come in under $2,400,000. How far under depends on the discount rate and the tenant’s credit. It also depends on the market when those six years run out. Flip the facts, with a strong tenant paying $12, and the leased version could come in higher.

The Owner’s Business Is Not the Building

Owner-users sometimes expect their company’s success to show up in the appraisal. After all, the building is where the money gets made. But a real estate appraisal values the real estate, and the business is a separate asset.

This matters most for restaurants, hotels, and car washes. In those, the operation and the building can feel like one thing. The Interagency Appraisal and Evaluation Guidelines address this. For federally related transactions, they bar using going concern value or value in use as market value. An appraisal can still report those values separately, as long as they are clearly identified.

In practice, the appraisal on your building will often come in below what the whole operation feels worth. That is by design. The SBA has its own rules on separating business value. Our article on SBA appraisal requirements covers them.

What Lenders Should Put in the Engagement

For bankers, occupancy changes more than the appraisal. It also shapes how you classify the loan. The 2006 interagency guidance on CRE concentrations excludes certain loans on owner-occupied buildings. The test is whether repayment comes mainly from the operations of the owner or its affiliate. It covers nonfarm nonresidential loans when 50 percent or more of repayment comes from third-party, nonaffiliated rental income. SBA uses a different test. For an existing building, 13 CFR 120.131 requires the borrower to occupy at least 51 percent. It may lease out the other 49 percent.

So a few lines in the engagement letter save a revision later. Tell the appraiser the current occupancy split, in square feet, between the borrower and outside tenants. State the interest you need valued, fee simple or leased fee. Does the borrower’s real estate LLC lease to its own operating company? Then send that lease too, and ask for a comparison to market rent. Related-party leases are often set for tax or convenience reasons, not market terms.

Finally, ask the appraiser to state a market rent figure even on a fully owner-occupied building. If the borrower’s business struggles, that number tells you what the space could earn from a tenant. Our overview of commercial appraisals for lending covers the rest of what credit reviewers check.

Plan for the Building You Might Own Next Year

If you occupy your building today, the value turns on market rent. Lease part of it out or plan a sale-leaseback, and the lease terms you sign will shape the appraisal for years. A lease set well below market to help your own company can drag down value later.

So before you sign, refinance, or sell, decide which interest you actually need valued. Then give the appraiser the leases, the occupancy split, and the intended use of the report. That keeps the number tied to the question you are asking.

Own the Building Your Business Runs From?

Whether you occupy it, lease part of it, or are weighing a sale-leaseback, we’ll value the right interest. We work from market rent and real lease data in your submarket.

Get a Commercial Quote

Frequently Asked Questions

What is the difference between an owner-occupied and an investment property appraisal?

An owner-occupied appraisal usually values the fee simple interest. So the appraiser estimates what the space would rent for at market. An investment property appraisal values the building subject to its existing leases. Contract rents, lease terms, and tenant strength all feed into that value.

Do appraisers use market rent for owner-occupied property?

Yes, in most cases. The owner pays no rent, so the appraiser studies comparable leases on similar buildings to estimate market rent. That rent then drives the income approach, alongside comparable sales.

How is contract rent different from market rent?

Contract rent is what a tenant actually pays under its lease. Market rent is what the space would likely rent for today on typical terms. When a lease runs below or above market, the appraiser accounts for that gap over the remaining term.

What is going-concern value?

Going-concern value is the value of an established business as a whole. That includes its real estate, equipment, and intangible assets. For federally related transactions, interagency guidelines bar using it as market value. An appraisal can still report it separately if clearly identified.

If my company leases the building from my own LLC, is it an investment property?

For valuation, the appraiser reads that lease and tests it against market rent. Related-party leases often stray from market terms. How to classify the loan is a separate question for the lender. Still, the 2006 federal CRE guidance treats space occupied by the owner or its affiliate as owner-occupied.

About PahRoo Appraisal & Consultancy

Owners, investors, and lenders come to PahRoo when they need a commercial value they can defend. Our commercial appraisal team works from our Lincolnwood office. We serve Chicago, Dallas, Philadelphia, Phoenix, and Naples, with deep coverage across Cook County through our Chicago appraisal services. Michael Hobbs, MAI, leads the firm.

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Owner-occupied family business real estate being valued in a divorce
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Divorce Appraisal
The Family Business’s Real Estate and What Gets Appraised in a Divorce

When a divorcing client owns a business, the building often gets lost in the business valuation. Maybe the company owns it outright. Maybe a spouse holds it in a separate LLC and charges rent. Either way, family business real estate usually needs its own appraisal, and how that appraisal fits with your valuation decides whether the numbers hold together.

By the end of this article, you’ll know:

  • Which real estate questions the appraiser answers, and which stay with you
  • How related-party rent can count the building twice
  • What to settle with counsel before anyone sets a value

Family Business Real Estate Is Its Own Asset

A business and the building it occupies are different things to value. The business earns its money from customers, staff, and know-how. The building earns its value from location, size, condition, and the rent it could command.

So an appraiser values the real estate, and a business valuator values the company. In practice, the two reports have to speak to each other. If they don’t, one asset can show up twice, or the building can vanish into a goodwill number nobody can test.

The appraiser’s job here is narrow on purpose. It covers the market value of the land and building. The enterprise, its equipment, and its customer list belong in the business valuation. When a property runs as a going concern, like a restaurant or a car wash, the appraiser separates the real estate from the business. Our conversation on going concern appraisal with Bruce Jones, MAI walks through how that split works, and our piece on special use property covers buildings with few comparable sales.

Who Holds Title Changes the Work

Start with the deed. Ownership usually falls into one of three patterns, and each one asks something different of your model.

First, the operating company may own the building. Then the real estate sits on the company’s balance sheet, often at depreciated cost. That book figure can be far from market value, so an asset-based method needs an appraised number in its place.

Second, one or both spouses may own the building personally or through a separate LLC. The company then pays rent, or sometimes pays none. Now there are two assets to account for, the business and the real estate holding.

Third, the company may rent from an unrelated landlord. In that case there is usually no family real estate to appraise at all. Still, the lease terms affect the business’s costs.

Whether any of these interests is marital, separate, or mixed is a legal question for counsel and the court. Under 750 ILCS 5/503, property acquired during the marriage is presumed marital. But the appraisal stays the same either way. It reports what the property is worth, and the attorneys argue what that value means.

Related-Party Rent Is Where Values Get Counted Twice

This is the part that matters most for your normalization work. When spouses own the building and the business pays them rent, that rent is a related-party number. It may not match the market.

Consider a hypothetical. A family distribution company uses a warehouse owned by the spouses’ LLC and pays no rent. The appraiser concludes the market rent is $60,000 a year. If the business valuation never deducts that rent, the company’s earnings look $60,000 richer than they would under a market lease. That extra income then gets capitalized into business value.

Meanwhile, the appraisal values the warehouse using that same $60,000 of income. At a hypothetical 8% capitalization rate, the building comes in near $750,000. Now the same stream of rent props up two values. The fix is to adjust the business’s rent expense to the market rent from the appraisal, so each asset carries only its own income.

The reverse happens too. Rent can rise before a divorce, which drains reported business income into the real estate entity. Either way, the market rent figure from the appraisal gives you a tested benchmark. For how appraisers build that income figure, see our guide to the income approach for commercial property.

Fee Simple or Leased Fee Should Be Decided Up Front

If a lease exists between the business and the property owner, the appraiser has to know which interest to value. A fee simple value assumes the building is free of that lease and could rent at market terms. A leased fee value reflects the owner’s position subject to the actual lease, including its rent and remaining term.

When the contract rent matches market rent, the two values tend to land close together. When a related-party lease sits well above or below market, they can split apart. A reading on leased fee valuation from Illinois State University lays out how contract rent and market rent drive that difference.

Because the lease was written inside the family, it may not survive the divorce. So the right interest to appraise is a scoping call to settle with counsel and the appraiser before any work begins. Write it into the engagement letter.

For Divorce Attorneys, Settle the Scope Before Anyone Values Anything

Attorneys can head off most of these problems early. A few steps make the experts’ work fit together.

Pull the deed and the entity records first. Who holds title, and through what entity, tells everyone which pattern you have. Then request every lease and the rent actually paid for several years, including any recent changes.

Next, align the valuation date. Section 503(k) sets the date of trial unless the parties agree on another date or the court orders one. The appraiser and the business valuator should work to the same date. Our article on the date of value in a divorce appraisal explains why mismatched dates cause trouble.

Finally, have both experts share their real estate figures before either report is final. That includes the market value, the market rent, and the interest appraised. Section 503(l) also lets the court seek advice from financial experts or other professionals, so a clean, consistent record helps if the court brings in its own.

Get the Building Valued Before the Business Number Is Set

If your engagement involves a business that owns or occupies real estate, ask for the appraisal early. You need the market rent to normalize earnings and the market value to complete the balance sheet. Waiting until the business valuation is done invites rework, or worse, competing appraisals in divorce court that disagree on facts nobody checked.

Is the Building Hiding Inside the Business Value?

PahRoo appraises the real estate on its own, with a market rent figure your business valuation can use. Tell us about the property and who holds title.

Value the Building Separately

Frequently Asked Questions

Is the family business’s building marital property?

That is a legal question for counsel and the court. Illinois presumes property acquired during the marriage is marital, but title, timing, and contributions all matter. The appraisal reports the property’s value either way.

How is company real estate valued in a divorce?

An appraiser sets the market value of the land and building, usually relying on comparable sales and an income analysis based on market rent. Illinois courts value divided assets at fair market value.

Does the business or the building get appraised?

Usually both, by different experts. A real estate appraiser values the property, and a business valuator values the company. Their reports should share the same date and the same market rent figure.

Who owns the property a business uses?

Check the deed. The company may own it, the spouses may hold it personally or through a separate LLC, or an unrelated landlord may own it. Each pattern changes what needs appraising.

Can the building be counted twice in a divorce?

Yes. If the business pays no rent or below-market rent to the spouses, its earnings look higher and the building’s income can inflate the business value too. Adjusting rent to market avoids that.

Real Estate Valuation That Fits the Financial Picture

PahRoo Appraisal & Consultancy appraises commercial and owner-occupied property for CPAs and family law attorneys across Cook County and the Chicago area. Michael Hobbs, MAI, signs our Illinois reports and is available to testify on them. See our commercial appraisal services, our overview of appraisals in divorce proceedings, and our Chicago appraisal coverage.

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Hearing table set for appraiser expert testimony in a property tax appeal
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Property Tax
When the Appraiser Testifies in a Cook County Tax Appeal

Most Cook County appeals never put an appraiser in front of anyone. The Board of Review reads the report, and the attorney argues. But once a case climbs to the Property Tax Appeal Board, appraiser expert testimony can decide whether that report counts at all. So the time to ask who will testify is before you hire the appraiser, not after the hearing notice arrives.

By the end of this article, you’ll know:

  • Why the report has to stand alone at the Board of Review
  • What happened at PTAB when the appraiser stayed home
  • Where the appraiser’s testimony ends and counsel’s argument begins

The Board of Review Hears From Counsel, Not the Appraiser

First, look at who is allowed in the room. Under the Cook County Board of Review’s official rules, only licensed attorneys and taxpayers representing themselves may practice before the Board. The rules also say nothing about appraisers testifying.

So at this stage the appraisal speaks for itself. Rule 19 sets the bar it has to clear. An Illinois-licensed or certified appraiser who is competent with the property type must prepare it. The appraiser signs the USPAP certification. And the value has to sit at the January 1 lien date.

In practice, that means the report must answer the questions an analyst would ask if the appraiser were there. Why these comparables? Why this adjustment? Why this date of value? If the answer lives only in the appraiser’s head, it never reaches the Board. Our guide to what a BOR appraisal must contain walks through the full checklist.

At PTAB, Appraiser Expert Testimony Can Decide the Appeal

The Property Tax Appeal Board works differently. Under 86 Ill. Adm. Code 1910.67, any party can force a hearing by asking in writing. Witnesses testify under oath. And subsection (l) adds a rule every tax attorney should know cold. Testimony about an appraisal comes only from a preparer whose signature appears on it, and only if the appraisal went in on time.

Now consider what can happen when nobody shows up. In one Cook County appeal from the 2010 tax year, the taxpayer filed an appraisal, but neither appraiser attended. The board of review objected that the report was hearsay. PTAB agreed and gave no weight to the appraisers’ adjustments or their opinions of value. It looked only at the raw sales, found the assessment within range, and denied the reduction.

That wasn’t a one-off. PTAB reached the same result in Cook County appeals from the 2015 and 2016 tax years. In the 2015 case, the Board found the appraisal was hearsay on its own motion. How any one appeal plays out is a judgment for counsel. Still, an appraiser who can’t commit to the hearing date is a risk you can see from day one.

What the Appraiser Covers, and What Stays With Counsel

Above all, good testimony stays in its lane. The appraiser explains the valuation. That means highest and best use, why each comparable made the cut, how the adjustments were built, and how the approaches reconcile. For income property, it also means the rent, vacancy, and cap rate choices behind the income approach in a tax appeal.

The legal side, however, belongs to the attorney. Burden of proof, uniformity arguments, and whether the evidence meets the standard are all counsel’s calls. When an appraiser drifts into legal argument, cross-examination gets easier for the other side. When the attorney tries to defend an adjustment the appraiser should explain, the record gets thinner.

In other words, that division is the strength. The attorney frames the case, and the appraiser proves the number under oath. Each one is more credible doing their own job.

For Litigation Attorneys, Plan the Expert Before the Hearing Date

If you handle valuation disputes outside the tax lane, the same lesson travels. A few moves pay off early.

First, confirm that the person who signs the report will be the person who testifies. At PTAB that is the rule, and in court it keeps the opinion and the witness in one place. A firm name on the cover is not enough.

Next, ask how often the appraiser has been cross-examined. Writing a sound report and defending it live are different skills. You want someone who has done both.

Then plan for disclosure. In Illinois circuit court, Supreme Court Rule 213(f)(3) requires a party to identify a retained expert’s subject matter, opinions and their bases, qualifications, and reports. So every basis for the value should already sit in the appraisal, not surface for the first time on the stand.

Finally, if the other side has an appraisal, consider a USPAP appraisal review of it. A review appraiser tests the opposing report’s data and reasoning, which gives you material for cross without turning your own appraiser into an advocate.

Hire the Appraiser Who Will Be in the Room

Before you engage anyone for an appeal that might go past the Board of Review, ask three plain questions. Will the signing appraiser testify if the case reaches PTAB or court? Have they held up under cross before? And will the report carry every reason behind the value on its own? If the answer to any of them is no, find out now, while you still have time to change course.

Will Your Appraiser Show Up at PTAB?

PahRoo prepares appeal appraisals built for review, and the appraiser who signs is available to testify. Tell us about the property and where the appeal stands.

Bring Credible Testimony

Frequently Asked Questions

Can an appraiser testify at a Cook County Board of Review hearing?

The Board’s rules limit practice before it to licensed attorneys and taxpayers representing themselves, and they do not provide for appraiser testimony. Plan for the appraisal report to speak for itself at that stage.

Does the appraiser have to attend a PTAB hearing?

Only a preparer who signed the appraisal can testify about it at PTAB. In several Cook County appeals, PTAB has given no weight to the value opinions in an appraisal when the appraiser did not testify and the report was treated as hearsay. Whether to bring the appraiser is a call for counsel, but the safe plan is to have them available.

Who can testify about an appraisal at the Property Tax Appeal Board?

Under 86 Ill. Adm. Code 1910.67(l), appraisal testimony may only come from a preparer whose signature appears on the appraisal, and the appraisal must have been submitted on time.

What does an appraiser’s testimony cover in a tax appeal?

The valuation itself, meaning highest and best use, comparable selection, adjustments, the income analysis where it applies, and how the approaches reconcile. Legal argument, such as burden of proof or uniformity, stays with the attorney.

What makes appraisal testimony credible?

Testimony that matches the written report, comes from an appraiser competent with that property type, and admits the weak spots in the data instead of overselling. Experience under cross-examination helps too.

Valuation Support From Filing Through Hearing

PahRoo Appraisal & Consultancy works with property tax attorneys across Cook County, from the first look at an assessment through a contested hearing. Michael Hobbs, MAI, signs our Illinois reports and is available to testify on them. Attorneys can request a preliminary opinion of value before committing to a full report, or read how our tax attorney referral program works. For income property, see our commercial appraisal services and our Chicago appraisal coverage.

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Lender reviewing an SBA appraisal report for a 7(a) loan on an owner-occupied commercial building
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For Bankers
What the SBA Needs To See In The Appraisal File

An SBA appraisal is the one document in a 7(a) or 504 file that the borrower cannot supply. The lender orders it. The lender is the client. And the SBA guaranty rides on whether the report meets the SOP, not on the number alone. So the appraisal deserves a closer read than the value on its cover.

By the end of this article, you’ll know:

  • Which rulebook governs the appraisal on a file that gets its loan number after October 1, 2026.
  • When the real estate has to be valued apart from the business that runs inside it.
  • What a borrower can do before the order goes in, so the report does not stall the closing.

SBA Appraisal Requirements Start With SOP 50 10

SBA does not publish a standalone appraisal rule. Instead, the requirements sit inside SOP 50 10. That is the Lender and Development Company Loan Programs procedure, and it governs 7(a) and 504 origination. The current version is SOP 50 10 8.1. It took effect October 1, 2026 and applies to applications issued an SBA loan number on or after that date. Files that received a loan number through September 30 stay under SOP 50 10 8. So the first question on any SBA appraisal is simple. Which version governs this file?

The dollar trigger comes from federal law. The 7(a) Real Estate Appraisal Harmonization Act tied SBA’s threshold to the bank regulators’ figure. Specifically, it uses the lowest commercial real estate threshold set by the Federal Reserve, the OCC, and the FDIC. Under the OCC’s appraisal rule, that figure is $500,000. So a 7(a) loan secured by commercial real estate above that amount needs an appraisal. A State licensed or certified appraiser has to prepare it. Below it, the statute leaves the call to the lender, though SBA and the lender can still require one.

One more wrinkle matters for bankers. The same OCC rule exempts transactions guaranteed by a federal agency from the bank appraisal requirement. That exemption is exactly why SBA writes its own appraisal standards into the SOP. A lender cannot lean on the bank rule’s exemption and skip the report on an SBA file.

What the SOP Expects From the Report and the Appraiser

For a standard 7(a) loan, the appraisal standards have stayed stable across recent SOP versions. SBA lending counsel Starfield & Smith summarized them well. The report must be a USPAP Appraisal Report, not a restricted report. It must be dated within 12 months of the application for guaranty. It must name the lender as the client or an intended user. So a report prepared for the seller or the borrower cannot be used. The appraiser must be independent of loan production and the approval decision. Above an estimated value of $1,000,000, the appraiser must be State certified. Because SOP language shifts between versions, confirm each point against the version on your file.

Two more points catch lenders after the order goes in. First, construction gets its own rules. If loan proceeds fund new construction or a substantial renovation, the appraisal must estimate value at completion. Then, once the work is done, the lender needs a statement that the building was built to the plans. Second, the appraisal gets measured against the value estimate in the credit memo. Any shortfall needs a written explanation. A report below 90 percent of the estimate triggers more than that. Non-delegated lenders need SBA’s written permission to close. PLP lenders must instead document why the number came in low and how they offset the risk. So the estimate in the credit memo is not a throwaway line. It sets the bar the appraisal has to clear.

504 Loans: One Report, Three Intended Users

A 504 project runs through a Certified Development Company alongside a senior lender. The SBA’s 504 program finances major fixed assets, including buying, building, or renovating land and buildings. The CDC portion is capped at $5.5 million. It cannot fund working capital or inventory. That structure makes the appraisal the anchor of the project budget. In practice the same report has to serve the third party lender, the CDC, and SBA. So the engagement letter should name every intended user before the appraiser starts. A report written for one party alone can end up reordered for the others, and that costs weeks.

The 504 structure also sharpens the going-concern question. Because 504 proceeds finance fixed assets, the value a CDC can rely on is the real estate and the long-term equipment. The business that operates there is a separate question. When the building only works with a business inside it, the report has to say how much of the value is which. That is where allocation comes in.

When the Real Estate Has to Be Separated From the Business

Some properties only make sense with a business running in them. A car wash. A hotel. A gas station with a convenience store. A golf course or a bowling alley. SBA calls these Special Purpose Properties, and it treats a change of ownership involving one differently.

The standard SBA set for these deals is specific. When a business operating from a Special Purpose Property changes hands, a Certified General Real Property Appraiser must complete the going-concern appraisal. That appraiser also needs experience in the property type. The report must allocate separate values to land, building, equipment, and intangible assets. And the appraiser must have completed at least four going-concern appraisals of equivalent special-use property in the prior 36 months. The report’s qualifications section has to show it. SBA Information Notice 5000-1340 introduced that language. It remains the framework lenders apply to change of ownership deals, which SOP 50 10 8.1 now gathers in Appendix 15.

Why does the split matter so much? A lender can secure a loan with land and a building. Goodwill is a different animal. If a report bundles everything into one going-concern number, the lender is stuck. It cannot tell how much of the collateral is real estate and how much walks out the door with the owner. The allocation answers that question line by line. It also has to reconcile. The parts should add up to the whole, and the real estate component should stand on its own against comparable sales. For a walk-through of how appraisers weigh sales, cost, and income evidence, see our guide to the three approaches to value.

For Borrowers: What Slows an SBA Appraisal Down

If you own the business, or you are buying the building your company occupies, the SBA appraisal is out of your hands. But you can keep it from stalling the deal.

  • Do not order your own appraisal. The lender has to be the client. A report you commission cannot go in the SBA file, so the money gets spent twice.
  • Ask the lender for its value estimate up front. That figure goes in the credit memo, and a report that lands well below it triggers extra review. If you think the estimate is high, say so before the order goes in.
  • Assemble the file the appraiser will ask for. That means the purchase agreement with any price allocation, plus current leases and a rent roll if part of the building is leased. For a special-use property, add three years of business financials and an equipment list with age and cost. For any build-out, add the plans and the budget.
  • Flag the property type early. If the building is a car wash, a hotel, or another Special Purpose Property, the lender needs a specific kind of appraiser. That means one with the going-concern experience the SOP requires. Finding one late adds weeks.

A clean file does not raise the value. Still, it keeps the appraiser from discounting for uncertainty, and it keeps the closing calendar intact. For owner-users, our commercial appraisal services page lists the property types we handle.

Match the Appraisal to the SOP Before the Order Goes In

Most SBA appraisal problems trace back to the engagement, not the analysis. The wrong client name. A restricted report. A licensed-only appraiser on a seven-figure building. A going-concern report with no allocation. Each one is avoidable at the order stage. So confirm the SOP version, name the intended users, match the license to the value, and ask for the allocation up front. Then the report can do what the guaranty needs it to do.

Structuring an SBA Deal With Real Estate Collateral?

PahRoo delivers USPAP Appraisal Reports for 7(a) and 504 files. The lender is named as client, the allocation is broken out, and a reviewer can trace the support.

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Frequently Asked Questions

Do SBA loans require an appraisal?

Yes, when a 7(a) loan secured by commercial real estate exceeds the federal banking regulator appraisal threshold, which the OCC rule sets at $500,000. The appraisal must come from a State licensed or certified appraiser, and the SOP adds its own requirements for the report, the appraiser, and timing. Below the threshold, the lender or SBA may still require one.

What is an SBA 504 appraisal?

It is the real estate appraisal ordered for a 504 project, where a Certified Development Company and a senior lender finance fixed assets such as land, buildings, and long-term equipment. The report sets the value behind the project budget, and in practice it has to serve the third party lender, the CDC, and SBA as intended users.

When is a going-concern appraisal needed for SBA?

When a change of ownership involves a business operating from a Special Purpose Property, such as a hotel, car wash, gas station, golf course, or bowling alley. SBA requires a Certified General Real Property Appraiser with experience in that property type, and the report must allocate value among land, building, equipment, and intangible assets.

What is the SBA appraisal threshold?

By statute, the 7(a) threshold equals the lowest commercial real estate appraisal threshold set by the Federal Reserve, the OCC, and the FDIC. Under the OCC rule that figure is $500,000. The SOP layers program rules on top of the statute, so lenders confirm the trigger against the SOP version governing the file.

Who pays for the SBA appraisal?

The lender engages the appraiser, since the lender must be the client, and the cost is generally passed through to the borrower as part of the loan’s out-of-pocket costs. Confirm the treatment with your lender, because the SOP governs which fees a lender may charge on an SBA loan.

Appraisals Written to Sit in an SBA File

PahRoo Appraisal & Consultancy prepares commercial appraisals for 7(a) and 504 lenders in five markets. Those are Chicago and Cook County, Dallas-Fort Worth, Philadelphia, Phoenix, and Naples. If your credit team reads the income section first, our guide to the income approach explains how those numbers get built. For scope and timing in Cook County, start with our Chicago appraisal services page.

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