All You Need to Know About Commercial Real Estate Valuations

  • Posted on: 7 June 2016
  • By: admin
Commercial Real Estate

Commercial property consulting is important especially when you want to purchase a commercial real estate. The evaluation of a commercial building is dependent on different factors that are intrinsic to the property. These factors are then processed through a metrics that compares sales, income capitalization and cost approach to determine the value of the property. To be able to get the actual value of the property you want to purchase, you will need commercial real estate consultants who are reputable for offering commercial property risk management services.

Historically, the main method of commercial real estate evaluation that has been used is the income producing approach. This means that the adage that gives location as the most important aspect of real estate is also dependent on income that the building has generated or can generate. The proximity of schools, vital infrastructure, and major highways will greatly impact the desirability, tenancy, quality and market rents that can be expected or dictated. However, the functionality and structural integrity of the property for its intended use, for example, retail, multifamily, office or mixed-use also play an essential role in the ability of the property to become an income generating instrument.

Why you need a commercial real estate consultant

A commercial property appraisal is different from residential. The commercial appraisals are more subjective in nature, and the value of the property is derived from the rental rates relative to expenses that have been paid out. The underlying asset is also important, but not as important to the same way the residential properties are valued.

If you are looking to get a property appraisal either because you want to buy, sell or if you want to establish the value of a lease, it is important that you know what you are embarking on through commercial property consulting.

What you need to know about commercial real estate appraisals.

The inspection is a small fraction of the appraisal process

Depending on the complexity and the size of the building to be appraised, it might take less or more than an hour to inspect it. Most people see this as the entire process, but it is just the beginning. Appraisers will begin by researching zoning records and ownership, investigate lifestyle and demographic information, and compile all replacement costs, comparable sales, and rentals. This information is then analyzed as it is related to the value of the building. The final step is a written report of their findings. Inspection of a property is just one of the steps of an appraisal process that can take days or weeks to complete.

Identify the users

Ensure that the appraiser knows why you want to use the report. In case you want to buy a property, this means that you will share the appraisal with the property seller or lender. However, in most cases they will also get their appraisals. All parties involved will be identified in the appraisal report and are the only ones who can use it.

Consider property interest before appraisal

It is important to inform your appraiser why you are interested in the property. For example, if you want to know the value of property free and clear, then what you are interested in is the fee simple interest. This means that you want to know the value of the building and all its property.