COMMERCIAL APPRAISAL SERVICES
A commercial real estate appraisal involves estimating the value of a commercial property such as office and factory buildings, apartment buildings, vacant land, retail strip centers, etc. before they are bought, sold, taxed, mortgaged, developed or insured.After defining the appraisal problem to be solved, the key concept driving the determination of market value is the highest and best use of the vacant land. Many questions are considered during this process. What are its unique characteristics? Is it in an industrial or retail district? What is its proximity to commuting channels such as highways, railway stations and airports? How easy is it to access the property via the existing ingress and egress and how well exposed is the property to traffic?The next step is determination of the highest and best use of the building. Is the current use the most productive use compared to the highest and best use of the land? A market analysis helps to seek these answers.A thorough inspection of the property is then completed. Photos are taken of the interior and exterior of the property. In addition, measurements are taken in order to determine accurate building area. Most importantly, we look for any obvious amenities – or defects – that would affect the value of the property. We also consider the foundation of the building, the roof and whether the building has undergone any renovation. After visiting the property, the appraiser would estimate its value by factoring in comparable sales in the same area, location, lease records, previous appraisals and possible value appreciation of the commercial property.
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.
Cost Approach
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).
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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.