Why are Property Condition Assessments Needed?

Posted by Evolve April 18, 2022

Inspector in the field conducting a property condition assessment

When evaluating a commercial real estate transaction, whether it is for acquisition or refinancing purposes, it is necessary to make sure that all due diligence is in order and up to date. Means of reporting can include zoning reports, surveys, environmental assessments, and property condition assessments (PCA), sometimes referred to as property condition reports (PCR). When financing is involved, it is frequently the lender who requires these items.

The Importance of Property Condition Assessments

In preparation for the transaction, Phase I Environmental Site Assessments and ALTA Surveys are usually requested early on. The property condition assessment may sometimes be left until the last minute or even overlooked. However, it is in the best interest of both the purchaser and the lender to require some type of physical assessment to ensure that the real property and its improvements are in acceptable condition. The property condition assessment serves as the tool for identifying any major deficiencies that would require immediate or near-term repair or replacement, which factor heavily into determining whether to proceed with the transaction.

What is Included in a Property Condition Assessment?

If a property condition assessment is requested, what exactly would be provided in the report? What is the “scope of work”? That may depend on what is requested but the standard scope, as outlined in ASTM E 2018-15, usually includes a representative walk-through where the Field Observer will note any material or physical deficiencies of deferred maintenance for the following items:

  • Site improvements
  • Structural Framing and Building Envelope
  • Facades: non-invasive, visual only
  • Roofs: non-invasive, visual only
  • Mechanical/Plumbing/Electrical
  • Elevators
  • Life Safety/Fire Protection
  • Interior Elements: in typical common areas
  • ADA Evaluation

Once the walkthrough is complete, the physical deficiencies and deferred maintenance are identified, and an opinion of probable cost is provided. Identified issues are separated into two categories: Immediate Need and Short-Term Costs. In addition, a Replace Reserve Table is generated, which projects replacements over the loan term. The full scope of the property condition assessment should be reviewed by all transaction parties in advance to avoid any last-minute delays. If the above listing does not give the purchaser or the lender the level of comfort needed to proceed, additional items can be negotiated with the provider when requesting a quote for service.

Trust Us for Your Property Condition Assessment

To provide the greatest level of understanding of a property, a property condition assessment can be ordered in combination with a Phase I Environmental Site Assessment. Engaging the services of a qualified professional to complete the property assessment goes a long way in alleviating concern for unexpected surprises throughout the transaction. For more information on our assessment services call 1-800-787-8397 ext. 854 or email jamie.ziemba@nv5.com.