I have seen deals die on the appraisal table that should have closed. And I have seen appraisals come in higher than expected because the owner did their homework before the appraiser showed up. The difference is understanding what the appraiser is actually evaluating and giving them the data they need to reach an accurate number.

Most investors treat the appraisal as a formality. Sign the order, wait two weeks, cross your fingers. That's backwards. The appraisal is one of the most consequential steps in any acquisition or refinance, and you have more influence over the outcome than you think.

Not by manipulating numbers. By presenting your property accurately and completely. Appraisers work with the data they have. If the data is incomplete, the appraisal suffers. That isn't the appraiser's fault. It's yours.

The Three Approaches

Commercial appraisers use three valuation methods. On multifamily and commercial properties, all three may appear in the report, but one will carry the most weight depending on the property type.

The Income Approach

For multifamily properties, this is the approach that matters most. The income approach values the property based on the net operating income it produces. The basic formula is simple:

NOI / Cap Rate = Value

If your building generates $85,000 in NOI and the market cap rate for comparable properties is 7.5%, the income approach values the property at approximately $1,133,000.

What the appraiser looks at:

Gross potential income. This starts with your rent roll. The appraiser will compare your current rents to market rents for comparable units in the submarket. If your rents are below market, they may use market rents instead of your actual rents, which helps your value. If your rents are above market due to concessions or unusual arrangements, they may adjust down.

Vacancy and collection loss. The appraiser won't use your actual vacancy number if it's abnormally low. They'll apply a market-standard vacancy rate, typically 5-7% for stabilized multifamily in Omaha. If your building is running at 2% vacancy, the appraiser still models 5%. This is conservative by design.

Operating expenses. Here's where a lot of owners get frustrated. The appraiser will reconstruct your expenses using a combination of your actual numbers and market benchmarks. If your insurance is abnormally low because you have a sweetheart deal with a carrier, the appraiser may normalize it higher. If your management fee is zero because you self-manage, the appraiser adds a management fee at market rate, typically 8-10% of gross income.

The appraiser's reconstructed NOI may differ from your actual NOI. This is expected. They aren't valuing your specific operation. They're valuing the property's income potential under typical management conditions.

Capitalization rate. The appraiser selects a cap rate based on recent sales of comparable properties. This is the most subjective part of the analysis and the one you have the least control over. A 50 basis point difference in cap rate selection on an $85,000 NOI property swings the value by more than $75,000.

What you can do: provide the appraiser with recent comparable sales that support a favorable cap rate. If a similar building in your submarket just traded at a 7.0 cap, make sure the appraiser knows about it.

The Sales Comparison Approach

This is the residential approach applied to commercial property. The appraiser identifies recent sales of comparable properties and adjusts for differences in size, condition, location, and amenities.

For small multifamily (2-4 units), the sales comparison approach often carries significant weight. For larger multifamily (5+ units), it's secondary to the income approach but still appears in the report.

What matters here:

Comparable selection. The appraiser needs sales of similar properties within a reasonable radius and timeframe. In Omaha, "reasonable" typically means within 1-3 miles and the last 6-12 months. If your submarket has limited sales activity, the appraiser may pull comps from further away or further back in time, which reduces accuracy.

Adjustments. No two buildings are identical. The appraiser adjusts each comparable sale for differences. More bedrooms, newer construction, better condition, larger lot. Each adjustment is subjective. A well-documented property condition helps the appraiser make accurate adjustments rather than guessing.

The Cost Approach

This method estimates what it would cost to rebuild the property from scratch, minus depreciation-actually-works), plus land value. For most multifamily acquisitions, the cost approach is the least relevant method. It tends to appear in appraisal reports for completeness but rarely drives the final value conclusion.

The exception: new construction or recently renovated properties where the income history is limited. In those cases, the cost approach provides a useful check against the income approach.

How to Prepare for the Appraisal

You can't control the appraiser's analysis. You can control the quality of information they have to work with. Here's what to prepare.

The Information Package

Have this ready before the appraiser walks the property:

Current rent roll with unit numbers, bedroom counts, current rent, lease start and end dates, and any concessions. Clean, formatted, easy to read.

Trailing 12-month income and expense statement. Actual numbers, not projections. Categorized consistently. If you have an accountant-prepared P&L, even better.

Capital improvement history. Every major improvement made in the last 3-5 years with dates and costs. New roof in 2024 for $45,000? That matters. New HVAC units, plumbing work, electrical upgrades, unit renovations. All of it. The appraiser needs to know the current condition of the building systems, and your improvement history tells that story.

Recent lease comps. If you have data on comparable rents in the area, provide it. The appraiser will do their own research, but your data helps, especially in submarkets where rental data is thin.

Comparable sales. If you're aware of recent sales that support your expected value, share them. Include addresses, sale prices, unit counts, and per-unit pricing. The appraiser may already have these, but providing them ensures nothing is missed.

The Property Walk

When the appraiser visits the property, they're looking at physical condition, deferred maintenance, safety issues, and overall appeal. This isn't the time to show them the worst unit in the building.

Clean common areas. Hallways, stairwells, laundry rooms, parking lots. First impressions matter, even for appraisers.

Show a representative sample of units. The appraiser will want to see multiple units. Show them your best-renovated unit and a standard unit. Don't hide the unrenovated units, but make sure the renovated ones are available and presentable.

Point out improvements. Walk the appraiser through the capital improvements you've made. Show them the new roof, the updated electrical panels, the renovated units. These improvements affect condition ratings, which affect value.

Be available for questions. The appraiser will have questions about operating expenses, lease terms, utility arrangements, and property history. Have answers ready. If you aren't available during the walk, prepare a written summary that covers the common questions.

Common Appraisal Killers

These are the issues I see most often that cause appraisals to come in below expectations.

Deferred maintenance. Peeling paint, deteriorating parking lots, visibly aging systems. The appraiser sees deferred maintenance and adjusts the value downward. If you have capital improvements planned, schedule them before the appraisal if possible. A freshly painted exterior and a sealed parking lot are worth more than the material cost in appraisal value.

Inconsistent financials. If your income and expense statement doesn't reconcile, or if your rent roll shows numbers that don't match your bank deposits, the appraiser loses confidence in the data. Clean books produce clean appraisals. Messy books produce conservative appraisals.

Below-market rents with no explanation. If your rents are 15% below market and you have no value-add-playbook-for-b-and-c-class-multifamily) plan documented, the appraiser may still use your actual rents instead of market rents. This suppresses your value. If you have below-market rents because of long-term tenants with plans to bring rents up at renewal, document that plan and share it.

Lack of comparable sales. In thin markets with limited transaction volume, the appraiser has to stretch for comps. Comps from different submarkets or different property types reduce accuracy. You can help by identifying the most relevant sales and presenting them proactively.

Environmental or code issues. Outstanding code violations, environmental concerns, or zoning non-conformities create uncertainty that appraisers price in with conservative adjustments. Resolve these issues before ordering the appraisal if possible.

Challenging an Appraisal

If the appraisal comes in below your expectations, you have options. You aren't stuck with the first number.

Request a reconsideration of value. Provide the appraiser with additional comparable sales, corrected data, or information they may have missed. This isn't a negotiation. It's a data-driven request. If you can show that a comparable sale was overlooked or that an expense was misstated, the appraiser may revise.

Order a second appraisal. Your lender may allow a second opinion. This costs another $2,500-$4,000 for a commercial appraisal, but it's worth it if the first appraisal has identifiable problems.

Negotiate based on the gap. If the appraisal comes in below the purchase price, use it as a negotiation tool with the seller. The appraisal is an independent opinion of value. If an independent expert says the building is worth less than the asking price, that's a data point that should be part of the negotiation.

The best way to handle a low appraisal is to prevent it. Prepare your data, present your property well, and give the appraiser everything they need to reach a defensible, accurate conclusion. The appraiser isn't your adversary. They're doing a job with the information available. Make sure the information is complete.

Looking at a deal in the Omaha or Lincoln market? We'll pressure-test your numbers for free. Reach out at Tanner@TopTierInvestmentFirm.com.

Tanner Sherman is the Principal and Managing Broker of Top Tier Investment Firm in Omaha, Nebraska. He co-hosts the Freedom Fighter Podcast with Ryan of Avara Investments.

What Commercial Appraisers Actually Look At