COMMERCIAL APPRAISAL SERVICES
Following are the three methods used in commercial real estate appraisal.
Market Approach/Sales Comparison
This is one of the most common methods of appraising commercial real estate. It’s also one of the most widely accepted. The method, typically, involves zeroing in on properties having similar characteristics in the same area and those that were sold recently. When such properties are found, they’re compared with the subject property. The appraiser adjusts the “comparables” in a negative direction for superior attributes and increases value for relative deficiencies. Using this method, the subject will fall within a value range, which the appraiser uses to determine a point estimate.
Income Capitalization Approach
This is a short-hand means for commercial real estate investors to determine the value of the property; it is based on its capacity to generate income when compared to similar properties. The anticipated net operating income of the property is divided by the market-derived capitalization rate to arrive at the correct value. Depending on the complexity of the property yield capitalization can also be used.
This method assumes that the value of the subject property is similar to the cost of constructing the property minus depreciation and then adding in land value. It calls for an exhaustive knowledge of material and construction costs. This is best used for very new or very old properties, or properties that are classified as special use (ie, religious facilities, car washes, etc).
Some Wise Words
Our real estate appraisals are carried out by MAI-designated appraisers. It’s important to carefully evaluate a property because the outcome of the appraisal will affect the final deal. For knowledgeable professional appraisals, contact D&D Associates, Inc. today.