The Obfuscation Method for Valuing Commercial Real Estate

Traditional Methods

Typically, appraisers use one or more of three recognized methods to value commercial real estate. These include:

The Cost Approach

The Sales Comparison Approach, and

The Income Approach

These methods work well for valuing most types of commercial real estate. On rare occasions, however, only one method seems to be credible – the Obfuscation Method. You won’t find this method discussed in the the pages of the Appraisal Journal or in the LUM Library though it’s a well known time-tested technique used by most seasoned veterans in the appraisal industry. The Obfuscation Method works best for highly unique property types or properties subject to unusual lease arrangements. Fortunately, you, the appraiser, are the one who determines the appropriate scope of work and only you can decide when Obfuscation is appropriate. Unlike the Competency provision of USPAP, there’s no need to disclose the use of this method to the client. Practically every appraiser, licensed or unlicensed, is qualified to use it.

For Those “Special” Properties

Here’s how it works. Suppose you’re reading through a lease agreement and encounter a term you’ve never heard before. Instantly you recognize that the lease provision is probably not significant and further investigation will require getting up from your chair, consulting The Dictionary of Real Estate Appraisal, and devoting several seconds, if not minutes, of thought to how this might impact the value of the Leased Fee Estate. You suddenly feel nauseous – maybe even a little dizzy. Here’s where the Obfuscation Method comes in. First, regain your composure and determine in your mind to attack the problem head-on by circumventing the issue entirely. Unless you’re a true professional, it’s best to stay on the safe side and not to even mention it in your report.

Practice is the Key

Once you’ve gained more experience and grown comfortable using Obfuscation, feel free to briefly mention the confounding issue in your report. Just make sure to follow it up immediately with industry specific jargon and non-related topics. Floor-area-ratio’s, functional obsolescence, and financially-feasible-rent-levels are some of my favorites!

One last piece of advice. Don’t always take life seriously. It’s almost Friday. Have a great weekend!

 

 

 

 

 

 

 

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