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(This story, in slightly different form, originally appeared in ALM’s Daily Business Review.)

MIAMI-As the commercial real estate market continues to seek bottom, beleaguered owners, loan servicers and institutional investors are asking brokers to help determine property values. But brokers are balking at providing free work, and critics say the pricing can be skewed as the brokers hope they will be chosen to sell the property.

With sales scarce and troubled loans plentiful, brokers are sought out for their feet-on-the-street outlook. Who better to know a building’s value than insiders with direct knowledge of tenant comings and goings, or unannounced deals in the pipeline that could affect sales and prices, the thinking goes.

Opinions differ dramatically from formal appraisals, which take longer to complete, cost thousands of dollars and must meet certain statutory standards. Appraisers take courses to earn industry trade group designations and certifications. Federal legislation is pending that would define a “qualified” appraiser and appraisal.

Lenders require appraisals for new loans or refinancings. But opinions are increasingly in demand by lenders, loan servicers and owners to get the most up-to-date reading of valuations in a market that has seen considerable volatility since the recession started.

“The seeking of brokers’ opinions has increased substantially since the beginning of the year,” says Mark Gilbert, executive vice president of Southeast Capital Markets Group of Cushman & Wakefield in Miami. Largely, that’s because most property values “are less by a wide margin than the balance owed on them,” he says.

Jonathan Kingsley, managing director and executive vice president of Grubb & Ellis in Miami, received calls within the past month from potential investors and loan servicers asking for values on a group of Corus Bank-owned condos, a major Miami-Dade County shopping mall and a class A office building in Miami’s central business district. Kingsley declined to identify the callers or the properties.

“We get calls from groups bidding on a pool of loans or a specific loan to determine if it makes sense to buy at a discount and the risk of having to own the real estate,” Kingsley says. “And we get calls from others, on behalf of lenders, to determine if the loan is in compliance based on current values.”

For example, a lender of $100 million based on a mall’s $80-per-square-foot lease rates at 5% vacancy would want to know if the vacancy rate was now 12 percent and if rents have dropped to $65 per square foot. That drop-off makes for greater risk.

“The name of the game today is how to value buildings,” says Sylvan Rothschild, senior vice president of Capmark Finance in Dallas. “A formal appraisal deals with such historical data that it’s of almost no value. In some markets, appraisal data goes back two years because nothing has traded. But a broker’s opinion is real-time data.”

A special servicer for the 227,447-square-foot Palm Springs Plaza in Palm Beach County asked for a price opinion after a $24.8-million loan was threatened by the property’s 65% vacancy rate, according to a broker who spoke on condition of anonymity.

That vacancy rate, and accompanying effect on the property’s net operating income, dropped the as-is value to between $12 million and $13 million. If occupancy could be stabilized to about 85% to 95%, the value would increase to about $18 million, according to the broker.

But while the market downturn has created a heightened interest in brokers’ opinions, it has also created a dilemma. In the previous market cycle, brokers would willingly give opinions because they would be almost guaranteed the job of handling the subsequent sale, says Robert Kaplan, principal of Olympian Capital Group in Miami.

“Today, there’s much less certainty that deals will close,” he says. “So each [opinion] request has become a burden.”

Growing numbers of brokers are charging for opinions they once offered for free. Fee estimates range from less than $1,000 to more than $10,000, depending on how many properties are involved and the expected turnaround time.

“Compensation is in [relation] to the likelihood of a transaction,” Kaplan says. “So where the lender is asking for a favor but there won’t be a transaction, there’s more and more resistance from brokers.”

The practice also raises questions from some industry experts, who wonder whether opinion-givers are more interested in the potential of future brokerage business from lenders or investors seeking their advice. Longtime appraiser Michael Cannon believes the use of broker price opinions could skew market values.

“It’s a very serious matter,” says Cannon, executive director of Integra Realty Resources in Miami. He adds that opinions are considered more authoritative than they really are, and believes state regulators should review the practice.

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