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May 06, 2015

SBA Issues Revised Appraisal Policies

The U.S. Small Business Administration on May 1 issued revised appraisal policies for change-in-ownership transactions involving special-purpose properties. The SBA removed requirements for business valuation credentials and repositioned such scenarios as real property-centric valuation scenarios.

The revised policies are found in Standard Operating Procedure 50 10 5(H) and take immediate effect.

Under the revised policies, a lender must obtain an independent appraisal performed by a certified general real property appraiser who has experience appraising the specific business property type in question in situations where a loan financing the acquisition is more than $250,000 or when there is a close relationship between the buyer and the seller and the business operates from a special-purpose property.

Specifically, the going concern appraisal experience requirement stipulates that a real estate appraiser must have completed within the last 36 months at least four going concern appraisals of special-use property equivalent to the property being appraised.

Under SOP 50 10 5(H), a special-purpose property is defined 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, largely conforming to the definition found in the Dictionary of Real Estate Appraisal, 5th Edition. Examples include car washes, hotels, gas stations (with or without a convenience store), golf courses, medical facilities and bowling alleys.

The policy changes respond to several concerns expressed by congressional oversight committees, the Appraisal Institute and banking and real estate trade organizations regarding a 2014 policy change that complicated financing for special-purpose properties. The revised policy appears to be a significant improvement over the previous version, although the provision of four appraisals in 36 months seems principally arbitrary.

AI is reviewing the revised policies and will provide additional comments and guidance as appropriate. AI professionals are encouraged to contact AI’s Washington office with questions, comments or concerns at 202-298-6449.

Read a summary of SOP 50 10 5(H) changes.

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