May 1, 2015 was the effective date of the U.S. Small Business Administration’s revised appraisal policies involving special-purpose properties that typically include a component of value attributable to going concern or intangible business value. The SBA removed requirements for appraisers to have business valuation credentials (prior version required the ASA designation).
While we at Valuation Management Group are sure that clients currently making SBA-backed loans are aware, we make it a practice to share industry changes that potentially affect all of our partners. The revised SBA policies are found in Standard Operating Procedure 50 10 5(H). Under the current appraisal policy for change-in-ownership transactions policies, the appraisal should be performed by an independent, certified general real property appraiser who has experience appraising the specific business property type for a subject property for transaction amounts exceeding $250,000, or when there is a close relationship between the buyer and the seller and the business operates from a special-purpose property.
Under SOP 50 10 5(H), Section II Collateral. 5. Business Appraisal requirements – Change of Ownership:
“b) Special Purpose Properties (A “Special Purpose Property” is a limited-market property with a unique physical design, special construction materials, or a layout that restricts its utility to the specific use for which it was built.)
i. If the amount being financed (including any 7(a), 504, seller, or other financing), minus the appraised value of real estate and/or equipment being financed, is $250,000 or less, the lender may perform its own valuation of the business being sold, unless the lender’s internal policies and procedures require an independent business appraisal from a qualified source.
ii. When the loan financing any portion of the acquisition of a business is over $250,000, or if there is a close relationship between the buyer and seller (for example, transactions between family members or business partners) and the business operates from a Special Purpose Property, the lender must obtain an independent appraisal performed by a Certified General Real Property Appraiser.
iii. The appraisal must allocate separate values to the individual components of the transaction, including land, building, equipment and intangible assets.
iv. The Certified General Real Property Appraiser must have completed no less than four going concern appraisals of equivalent special use property as the property being appraised, within the last 36 months, as identified in the qualifications portion of the Appraisal Report.
v. Each appraisal assignment under this section must be undertaken with a specific instruction for the Certified General Real Property Appraiser to conduct the appraisal in compliance with current USPAP guidelines.”
The SOP defines a special-purpose property as a limited-market property with a unique physical design, special construction materials, or a layout that restricts its utility to the specific use for which it was built. Also referred to as purpose-built properties, these include, for a few examples, car washes, hotels, gas stations/convenience stores, golf courses, medical facilities and bowling alleys.
Valuation Management Group takes pride in staying abreast of changes that affect our clients and appraisers so we are sensitive to and understand all that must be in place regarding compliance issues. It is important to utilize qualified and trained individuals for all valuations. As such, the changes to the SBA policies are critically important to the appraisal engagement process and assuring only qualified individuals are considered for engagement on appraisal reports for SBA loans. As part of VMG appraisal management services, the engagement to a qualified appraiser and the commercial appraisal review are handled for a financial institution.
Valuation Management Group is a national, full service appraisal management company that manages the appraisal process for community banks, mortgage bankers and credit unions. We offer the full array of commercial and residential appraisal products and services. We take the appraisal process from ordinary to extraordinary.