Copyright © 2011 Keller Williams Realty, Inc. SM

Inspections,

Appraisals,

Environmentals!

... Oh, My!

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Presenter, Team Leader

Gina M. Palumbo Broker-Associate NY-NJ Managing Director, KW Commercial Keller Williams Valley Realty 123 Tice Blvd Woodcliff Lake, NJ 07677 201-391-2500 ext 108 201-820-5050 ginapalumbo@kw.com

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Glenn P. Godart DMD Realtor® Associate Healthcare Specialist Keller Williams Valley Realty 123 Tice Blvd Woodcliff Lake, NJ 07677 201-391-2500 ext 624 201-314-2182 glenngodart@kw.com

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Phillip H. Sorace Realtor® Associate Financial Services Specialist Keller Williams Valley Realty 123 Tice Blvd Woodcliff Lake, NJ 07677 201-391-2500 ext 734 917-883-1278 Phillipsorace@kw.com

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Introduction

In this course, you will learn the following:

•  Commercial Inspections – How they differ from Residential Inspections

•  Commercial Appraisals – 10 Things to Know –  3 Appraisal Methods

•  Environmental Assessment – Basic Elements of Phase I & Phase II

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Commercial Inspections

• Common Types of Commercial Inspections:§   Pre-purchase for buyers§   Pre- and post-lease for landlords or tenants§   Draw inspections on new construction§   Site review, pre-purchase or pre-construction§   Investigative/problem-solving§   Consulting

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Commercial Inspections

§   Apartment Buildings§   Office Buildings§   Warehouses§   Restaurants§   Strip Malls§   Convenience Stores

•  Medical/Professional§   Churches§   Unusual: Ranches,

Bed-and-Breakfast Inns, Small Aircraft Hangers …

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• Types of Commercial Buildings Inspected:

Commercial Inspections

§  Owner occupants§  Investors§  Insurance companies§  Mortgage companies§  Banks§  Tenants, for pre- and

post-lease§  Landlords

§  Property management companies

§  Field service companies§  Architects, engineers

and construction project managers

§  Retailers

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• Types of Commercial Clients:

Commercial Inspections Vs. Residential Inspections

• Residential – Deals with emotion –  “I love the house” – Performance needs

today – Emphasis on what

needs to be replaced now

– Flat rates $395 - $750 10

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• Commercial – Deals with money –  “How much can I make

on this Investment?” – Five year projections – Emphasis on industry

standards and life expectancies

– Averages $.$25 per sq ft

Commercial Appraisals

•  Commercial is very different from residential in the fact that appraisals are much more subjective in nature

•  Much of the value derived from a commercial building is based on the rental rates received relative to the expenses paid out

•  The underlying asset is important, but not even close to residential property value assets

•  Commercial value is less about the property & more about how it performs 11

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Commercial Appraisals 5 Things to Know …

1.  The Physical Inspection is Only a Small Part 2.  Appraisers Must Adhere to a Strict Code

of Ethics 3.  The Client is the Party that Orders the

Appraisal

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Commercial Appraisals 5 Things to Know …

4. There are 3 Types of Reports:

–  Restricted Use Report –  Summary Report –  Self-Contained Report

5.  Report Type does not dictate Scope of Work

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Commercial Appraisals Three Primary Methods to Find Value

• Cost Approach – Assumes the value is the same as the cost to

construct or replace … not commonly used • Sales Comparison/Market Approach

– Most familiar and similar to residential – Used most for conventional financing

•  Income Capitalization Approach –  Investors determine value based on

net income generated by the property 14 Revision 1.1, 05/09/2011

Environmentals

•  Phase  I  and  Phase  II  Environmental  Site  Assessments  (ESAs)  have  been  developed  to  evaluate  environmental  issues  at  any  site  previously  used  for  commercial  purposes.  

•  Standards  for  Phase  I  and  Phase  II  ESAs  have  been  established  by  the  American  Society  for  Tes?ng  and  Materials  (ASTM)  

•  Comprehensive  Environmental  Response,  Compensa?on  and  Liability  Act  (CERCLA)  contains  na?onal  policy  and  procedures  for  containing  or  removing  hazardous  substances  that  have  been  released,  and  also  provides  funding  and                                      guidance  for  clean  up  

•  Be  aware  of  state,  local,  or  federal  regula?ons                                                                outside  of  CERCLA 15

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Environmentals What is a Phase I?

•  The  Phase  I  ESA  involves  a  review  of  records,  a  site  inspec?on,  and  interviews  with  owners,  occupants,  neighbors  and  local  government  officials.  

•  Contamina?on  can  result  from  ac?vi?es  that  took  place  on  the  site.    

•  Contamina?on  could  also  come  from  ac?vi?es  at  nearby  proper?es.    

•  Public  records  are  available  regarding  the  loca?ons  of  proper?es  that  have  been  classified  as                                      contaminated  by  federal  or  state  regula?ons.

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Environmentals What is a Phase II?

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• If  a  Phase  I  ESA  iden?fies  poten?al  contamina?on  of  the  site  by  hazardous  materials,  a  Phase  II  ESA  may  be  conducted.  

• The  Phase  II  ESA  includes  sampling  and  laboratory  analysis  to  confirm  the  presence  of  hazardous  materials.

Environmentals Phase II Testing May Include:

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•  Surface, Soil and Water Samples •  Subsurface Soil Borings • Groundwater Monitoring •  Drum Sampling, if any were found •  Sampling of Dry Wells, Floor Drains, and

Catch Basins •  Transformer/Capacitor Sampling •  Testing of Buried Tanks/Underground

Storage

Environmentals

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• Who performs Phase I and Phase II ESA’s? – An LSRP: Licensed Site Remediation Professional

• What do they file with the state of NJ? – An RAO: Response Action Outcome – Unlike the old NFA – No Further Action Letter –

the RAO is subject to audits by the NJDEP • How long does the NJDEP have to

conduct an audit? – 3 years from when the RAO is filed

Environmentals

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• AAHHHH!      YOUR  SITE  IS  CONTAMINATED!  • Phase  I  and  II  ESAs  NEED  to  be  iden?fied  in  the  contract.    Possible  op?ons  might  be:  –  Require  the  current  landowner  to  clean  up  the  property  prior  to  the  sale  

–  Reduce  the  cost  of  the  property  commensurate  with  the  cost  of  remedia?on  required  

–  Pursue  acquisi?on  and  clean  up                                                          alterna?ves  that  help  control  your                                                            environmental  liability  for  the  property  

Copyright © 2010 Keller Williams Realty, Inc. SM

Questions/Answers

Thank You for the Opportunity to Share with You … I Look Forward to the

Opportunity to Work Together! ~ gina, glenn and phil

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