One of the key reasons commercial real estate appraisals are so important is because they enable investors to determine what is worth of a specific property. From that standpoint, property valuation is hugely important, and using one or a combination of the following appraisal approaches, it is possible to properly establish a current commercial property’s value. This method of appraisal is based mostly on how much revenue the investor can expect to receive from the specific property. With an income-based approach, the investor looks at a properties revenue in relation to its expected return rate.
Often called the simple income approach, the value approach is based on the ratio between an investors desired rate of return and the net income a property produces. A commercial appraisal may base itself solely on a property’s value, but that typically does not help in understanding your properties potential revenue.
This formula for valuing commercial real estate is typically used to determine properties that have low prices compared with their potential income according to market. Value may also depend on a sellers perceived worth for the real estate parcel (for example, if they believe that a property has potential for profitability, that may increase its value). Property Value refers to a fair market value for a specific property, based on a price agreed to between buyer and seller.
As the buyer or seller, you have the right to ask a commercial real estate agent what one of these methods will be used in the determination of a property’s value. If, for instance, you are starting or ending a rental, you might want a valuation done to get an independent view on what the true value of a property is. If your company is asked to supply a valuation for your assets, such as in auditing, you will need to have an estimate for your property on hand.
Knowing a buildings value helps buyers, sellers, and professionals decide what to do with a property. If you are planning on selling an investment property, the commercial property valuation may provide insight as to how much a potential buyer would likely want to pay. The appraisal will project the price that a commercial property would sell for on the open market, helping to determine whether it is selling for fair value and inform the price negotiations.
By analyzing sales histories of recent sold properties, a highly accurate commercial property valuation can be determined of any kind of property, in any market across the country. While residential properties are mostly valued by comparable nearby comparable prices, the determination of the commercial property’s value will rely on other variables beyond the comparative method. Perhaps one of the most significant variables that can affect a specific commercial properties value is its location. General concepts in real estate markets such as supply and demand within a given area certainly will factor into the overall value of a specific property.
Demographics, rental trends, infrastructure access, and so much more may appear quite different beyond the market’s footprint, and all can have a bearing on the value of the property. The biggest factors to look at when choosing comps are the size, the comps characteristics, and — maybe the biggest one — location, all of which have the potential to make a huge difference in a properties market value. It is worth noting that a property’s value depends on many factors, including property condition, the demand for a particular property type, the location, the amount of money a property is likely to bring in, etc.
There is always some price that the investor is willing to pay, but that price may or may not come close to affair market value for something. While someone who is new to commercial real estate may choose to avoid this cost if a property is priced either below or above valuation, the cost could prove much higher. When setting a property’s value for your business, you may be inclined to secure insurance based on either the assessed or market value.
In a commercial real estate investment, value is tied to a property’s economic benefits to the owner; commercial properties true value comes from their revenue generation and tax advantages. The cap rate is a ratio of a properties net operating income to its value, and is used to express the expected return to the investment by an owner over a one-year period, prior to the consideration of capital costs, debt service, and taxes. The selection of the real estate cap rate can be one of the more critical decisions an assessor makes and is generally based on the cap rates achieved by the most recent sales of comparable properties in the same market.
