It’s a largely accepted real estate maxim that the appraised value of a property lags behind its commercial sale price. However, it’s actually the size of the gap between the market value and the appraised value that could have a real impact if the seller wants correct evaluation of an offer or the buyer wants to apply for a loan. What is the amount of variation between the sale price and appraised value, or what should a commercial property investor keep in mind while assessing appraisals to determine property performance? A commercial real estate appraisal seeks to answer these questions.
While estimating the value of a commercial property, real estate appraisal firms take note of its unique characteristics, like whether it’s in an industrial area or a standalone building, proximity to commuting channels like highways, railway stations and airports, and similar issues. They also consider the foundation of the building, the roof and whether the building has undergone any renovation. Besides photographing the outside of the property, the real estate appraisal company is also likely to photograph the interiors and also the offices of the senior officials. 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.
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 property that has been put up for the appraisal. The appraiser would deduct a value from the latter property for relative deficiencies and increase the value for advantages. The sales comparison approach is the usual method when an investor seeks conventional funding for the property.
Income Capitalization Approach
This is a short-hand means for commercial real estate investors for determining the value of the property based on its capacity to generate income when compared to similar properties. If the buyer or seller is aware of the prevailing rates of capitalization for the property in question, then the income earned by the property can be divided by the capitalization rate and arrive at the correct value.
The cost approach is not a very commonly used method. The method assumes that the value is similar to the cost of constructing the property or its replacement costs. It calls for an exhaustive knowledge of material and construction costs.
Some Wise Words
Real estate appraisals are carried out by skilled professionals. It’s important to carefully evaluate a property because the outcome of the appraisal will affect the final deal. For knowledgeable professional appraisals in Clearwater, contact Bruners Insurance of South Tampa today.