What’s The Difference?
Welcome to my website. I will attempt to use this space to provide useful information and to educate those who might be unfamiliar with commercial real estate valuation.
I often get questions regarding home appraisals and why they are so different from commercial appraisals. If I had to give one answer, it would be “time”. A skilled residential appraiser can complete a single family appraisal in approximately half a day. While it takes a good deal of skill to accurately complete such a valuation, it usually does not require a great deal of data to complete, and most of the time the report is presented in a form report.
On the other hand, most commercial appraisals are written in narrative form. This means that the data used to support the analysis is researched, presented and then explained. A productivity analysis of the subject property and an analysis of the market is done which will support the highest and best use of the property. This helps determine the best sales and rental comparables to be used. Since most commercial properties exist for the benefit of return to the investor, an extensive analysis of the market is done to determine vacancy rates, expense ratios, absorption rates (time it tales to “rent-up” a property), capitalization rates (used to determine value from a calculated net operating income), etc. Some reports require a discounted cash flow analysis, which projects future cash flows based on gross income, expenses, and eventual sale of the property. These types of reports can be 60-100 pages long and can take a week or longer to complete.
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