Buying commercial propertyThe loan sets the valuation and any occupancy share; the use raises the zoning and building code questions.
Start with the lender's regulator and loan program, then take the intended use to the local offices. An appraisal, an SBA occupancy calculation, a zoning response and a building official's code answer do different jobs in a commercial purchase.
The commercial valuation line belongs to the lender's rule
Buying commercial property does not begin with one appraisal threshold for every lender. The example here is the OCC's rule for the transactions within its appraisal subpart. Ask the lender which regulator and program govern the loan before applying a figure.
| Transaction | The rule's treatment | Keep the qualification |
|---|---|---|
| Commercial real estate transaction with transaction value of $500,000 or less | An appraisal exemption under paragraph (a)(13); paragraph (b) requires an appropriate evaluation for a transaction exempt on that basis | Another exemption can change the evaluation answer; the lender identifies the applicable paragraph |
| Federally related commercial real estate transaction with transaction value over $500,000 | An appraisal prepared by a State certified appraiser under paragraph (d)(2) | This describes a transaction requiring an appraiser, not every loan above that figure |
| Business loan with transaction value of $1 million or less, meeting the repayment-source condition | The paragraph (a)(5) appraisal exemption; paragraph (b) requires an appropriate evaluation for that exemption | The repayment test below belongs with the amount |
The business-loan exemption includes this repayment condition:
not dependent on the sale of, or rental income derived from, real estate as the primary source of repayment
12 CFR 34.43(a)(5)
That is a repayment-source test, not an owner-occupancy percentage. The lender applies it to the actual loan.
For a loan secured by one property, transaction value is generally the loan amount. A purchase price on a listing is not the measure to drop into this table. Multiple-property and tract-development transactions need their own treatment from the lender. The OCC also reserves the power to require an appraisal for safety and soundness concerns.
Ask who engages the appraiser before ordering a report
The Interagency Appraisal and Evaluation Guidelines place selection and engagement with the institution or its agent. They also describe a route for an appraisal prepared for another financial services institution when the regulatory conditions are met. Ask the lender how it will obtain the report before paying for one independently.
The Guidelines call for a competent, independent person with experience relevant to the property and market. They describe an evaluation as supporting a credit decision with a market-value estimate and sufficient analysis. Bowman's opinion of value is a different document; it does not become the lender's valuation by being attached to the file.
The useful questions are concrete: which valuation is required, who is engaging the preparer, what property and intended use the assignment covers, and what information the lender still needs. The Guidelines are supervisory guidance; the applicable regulation and the lender's program determine the assignment. A promised report-delivery date is not a loan-approval date.
SBA occupancy shares distinguish an existing building from new construction
For an operating borrower using SBA 7(a) or 504 financing to occupy the property, 13 CFR 120.131 distinguishes existing-building work from construction of a new building. Its measure is Rentable Property. Have the SBA lender identify that measure and apply it to the actual borrower and space plan.
| Financed work | Occupancy and permanent leasing | Plan for remaining space |
|---|---|---|
| Acquisition, renovation or reconstruction of an existing building | Borrower permanently occupies and uses at least 51 percent; permanent leasing may reach 49 percent | These are the existing-building provisions, not the new-building plans in the next row |
| Construction of a new building | Borrower permanently occupies and uses at least 60 percent; permanent leasing may reach 20 percent | Plan to occupy and use some remaining space within 3 years and all remaining space not permanently leased within 10 years |
Keep permanent leasing separate from space the business plans to occupy later. The new-building paragraph carries both occupancy plans, rather than a single future move-in date. The regulation also addresses property-holding arrangements; those arrangements and the other program eligibility conditions belong with the SBA lender, not a conclusion drawn from this table.
Bring the existing or proposed floor plan and identify the operating space, permanent leases and future occupancy. Ask the lender which paragraph it is applying. A conventional loan, an SBA loan and the OCC business-loan repayment exemption should not be blended into one occupancy test.
The loan file joins financial records to the identified property
The OCC's Commercial Real Estate Lending handbook describes documents banks typically keep in loan files. Its examples include financial and operating statements, leases, the valuation and review, title insurance, a survey, tax and parcel information, and environmental reports considered necessary for the property. This is examiner guidance, not a universal checklist for every borrower.
Use that list to ask which records your lender wants and who will supply them. The separate guides explain title insurance, land surveys and the Phase 1 environmental inquiry.
The handbook's examiner questions include evidence of zoning or a zoning endorsement to the title policy. That is a prompt to ask the lender what evidence it needs for this property, not a rule that every commercial borrower must obtain a zoning letter. The intended use then has a separate local answer.
A zoning request has a response period and an owner-notice rule
Where the locality zones, take the parcel and intended use to its zoning administrator. The separate unzoned commercial ground answer covers the other side of that jurisdiction question.
Virginia Code section 15.2-2286 A 4 directs the administrator to respond within 90 days to a request for a decision or determination on zoning matters within the scope of that authority, unless the requester agrees to a longer period. The statutory duty is to respond. Ask the administrator what request and supporting information fit the proposed question.
If the applicant is neither the owner nor the owner's agent, section 15.2-2204 H requires written notice to the owner within 10 days after receipt of a covered request. It applies to the specified written actions subject to the appeal provisions the subsection names; it also states an exception for normal-course inquiries by the governing body, planning commission or locality employees. A buyer should raise the notice requirement before asking for an answer about someone else's property.
Section 15.2-2311 provides an appeal to the board of zoning appeals and a 30-day filing period after the decision, with provisions governing notice, service and filing. The zoning-administration statute also permits shorter local periods for specified violation notices. Take a particular decision or letter promptly to a Virginia land use attorney to establish the applicable route and deadline. A contract deadline does not replace that review.
Keep the actual request, response and dates together. Whether a particular paper protects an intended project, can be appealed or can later be changed is a legal reading of that paper and its circumstances. Entitlements and vested rights are a separate question.
The building code gives change of occupancy a conditional meaning
For buildings and structures the USBC covers, the existing-building code links a change in classification, purpose or activity level to a condition: the current Virginia Construction Code must require greater structural strength, fire protection, means of egress, ventilation or sanitation than the building or structure already provides. Keep that condition with the term change of occupancy.
USBC Section 116.1 requires a certificate before occupancy or change of occupancy in accordance with that section. Bring the planned activity and the existing record to the local building official to establish how the code applies. The broader certificate of occupancy guide covers the certificate itself and its exceptions.
The existing-building code provides a preliminary meeting with a prospective permit applicant, when requested by that applicant or considered necessary by the code official, to discuss the proposed work or change of occupancy and establish the applicable provisions. That is a useful point to resolve the proposed use before treating a standing building as ready for it.
Keep the lender, zoning and building questions on separate lines in the file. Write down the source of each answer and the unresolved condition. For bare development ground, start with the development-land valuation and the development records rather than importing an existing-building answer.
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Good questions, straight answers.
Who should engage the appraiser for a regulated commercial loan?
The Interagency Guidelines place direct selection and engagement with the institution or its agent, and describe a conditional route for an appraisal prepared for another financial services institution. Ask your lender how it will obtain the appraisal before commissioning one yourself.
Does the zoning administrator's 90-day response period set a safe closing date?
The statute requires a response on zoning matters within the administrator's authority unless the requester agrees to longer. It does not set your purchase-contract calendar. Ask the administrator what the request needs and have your attorney address the contract and any appeal deadline.
Does SBA new-construction financing let the borrower permanently lease every space it does not initially use?
The direct borrower-occupancy paragraph permits permanent leasing up to 20 percent of Rentable Property while the borrower permanently occupies and uses at least 60 percent. It also requires plans for some remaining space within 3 years and all remaining space not permanently leased within 10 years. Have the SBA lender apply the complete provision to the actual arrangement.
Does every change of business activity automatically fit the building code's change-of-occupancy definition?
The Virginia Existing Building Code attaches a condition: the current Construction Code requires greater structural strength, fire protection, means of egress, ventilation or sanitation than exists, along with a change in classification, purpose or activity level. Bring the actual proposed activity to the building official; the term should not be assumed from a new business name alone.
Where this page's facts come from
Every rule, office and figure above traces to one of these. Rules change; check the office before you act on one.
- Current appraisal-subpart scope OCC
- Current definitions, including transaction value OCC
- Current 12 CFR 34.43 commercial appraisal/evaluation provisions OCC
- Interagency Appraisal and Evaluation Guidelines: independence, engagement, evaluation content Federal Reserve
- Current 13 CFR 120.131: occupancy and leasing for 7(a)/504 U.S. Small Business Administration
- Commercial Real Estate Lending handbook: loan-document examples and examiner questions OCC
- Code section 15.2-2286 A 4: version effective on this page's date Virginia General Assembly
- Code section 15.2-2204 H: owner notice for covered requests Virginia General Assembly
- Code section 15.2-2311: appeal provisions Virginia General Assembly
- USBC Section 116: certificates of occupancy Virginia General Assembly
- VEBC Chapter 2: complete conditional change-of-occupancy definition Virginia General Assembly
- VEBC application: preliminary meeting and change-of-occupancy administration Virginia General Assembly
- Current posted code edition and effective date Virginia DHCD