Understanding Commercial Real Estate Appraisal
UNDERSTANDING APPRAISAL OF COMMERCIAL REAL ESTATE
What is a commercial real estate appraisal?
Commercial real estate appraisal (CRE appraisal) is the process of determining the value of a commercial property, such as an office building, retail center, or apartment complex. Appraisals are conducted by licensed professionals who use a variety of methods to assess the value of a property through inspecting the subject property, considering economic and market conditions, and analyzing comparable sales.
Who needs a commercial real estate appraisal?
There are several different types of commercial real estate appraisals, including those for financing, litigation, and tax purposes. Banks and other lending institutions often require commercial real estate appraisals to evaluate the value of a property before approving a loan. Commercial investors and property owners may also need appraisals to determine the value of a property for leasing or listing for sale. Additionally, local governments may require appraisals for property tax appeals. Overall, anyone looking to buy, sell, or finance a commercial property will likely need an appraisal to determine the value of that property.
HOW TO APPRAISE COMMERCIAL PROPERTY – 3 METHODS
How does appraisal of commercial property work? How does a professional commercial property appraiser appraise commercial real estate? By considering various factors such as the location, condition and income potential of a commercial property. There are three primary methods used to appraise commercial properties: the Sales Comparison or “Market” approach, the Income approach, and the Cost approach.
Sales Comparison or “Market” Approach
The Sales Comparison Approach for commercial property appraisals, also known as the “Market” approach, compares the subject property to recent sales of similar properties in the area surrounding the subject. This approach is based on the principle of substitution, meaning that a buyer would be willing to pay a similar price for the subject property as they would for a similar property in the same area. This approach is the most widely accepted and understood, and it reflects current market conditions. However, it is critically important that the data on the sales of comparable properties be accurate and that the commercial real estate appraiser has the knowledge and experience to be able to properly adjust for the differences in properties such as physical characteristics and conditions of sale.
Income Approach
The Income Approach is based on the establishing a properties market value by estimating the income that the commercial property generates or is projected to generate and applying a multiplier. This approach considers the gross income and expenses of a commercial property and applies a market derived capitalization rate or multiplier to determine the market value of the property. This CRE appraisal approach is particularly useful for income-producing commercial properties and provides insight to the investor into the potential return on investment. The Income Approach is more complex and time-intensive than the other approaches and also requires accurate financial data.
Cost Approach
The Cost Approach estimates the market value of the commercial real estate based on the cost of replacing it with a similar property. This approach calculates the value of the land and the cost of reconstructing a new building on the land, then subtracts any physical deterioration or functional obsolescence. This commercial appraisal approach is most useful for unique (special-purpose) properties and providing insight into the potential cost of property replacement. The Cost approach can also estimate when the property is nearing the end of its economic life, either through physical depreciation or changes in market conditions.
FOR COMMERCIAL REAL ESTATE APPRAISAL IN JAX, FL, TRUST MOODY WILLIAMS, THE CRE APPRAISAL EXPERTS
It’s one thing to know how to appraise commercial property, but quite another to be able to provide an appraisal for commercial real estate that is accurate, well-researched and supported by strong data. Moody Williams provides over 40 years of experience appraising commercial property in Northeast Florida for banks, credit unions, real estate attorneys, real estate agents, investors, public entities, and others. If you need an appraisal for commercial estate in Jacksonville, then call and speak to one of our CRE appraisal experts at (904) 516-8900 or email us at
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