Something that can be very important to many businesses is a commercial property appraisal. If you want to sell your property, buy a property, lease a property or appeal property taxes, you will need to perform an appraisal of that commercial property. However, many laypeople do not understand what such an appraisal actually entails. With that in mind, below are four keys to appraising a commercial property.
1. A Survey of the Structure
One common method used to appraise a commercial property is to pay to have a survey performed by an outside firm. In this case, the structure’s “building envelope” will be examined and assessed. The building envelope describes pretty much everything that is part of the structure such as the building’s facade, windows, roof, balcony, parking lot and more. The condition of each item in the building envelope will be recorded as well as whether or not it requires repair work. There are many benefits of building envelope surveys when appraising a property.
2. The Cost Method
One way that the value of a commercial property can be appraised is through the implementation of the cost approach. This calculates how much a structure is worth by determining exactly how much it cost to construct the building as well as how much it would cost to replace it as is. This method obviously works better with newer buildings. Older buildings, of course, lose some of that value thanks to depreciation.
3. Market Value
The most common way to appraise a piece of real estate is through market value. This is the way residential real estate is appraised. For a commercial property, appraisers will compare the property being appraised and similar properties in the same general area that were recently sold. After factoring in deductions for disadvantages the other properties do not have, as well as adding value for additional advantages, the appraiser will determine a monetary value.
4. Income Capitalization
Lastly, another key to appraising a commercial property is income capitalization. This method is different than the ones above because it takes that commercial property’s income into consideration. Using this strategy, the income produced by a property is contrasted against the income produced by other similar properties. According to Investopedia, the value of the property can be determined by taking the income being produced by that property and dividing it by the capitalization rate for that particular market.
Overall, the four things that can be used to appraise the value of a piece of commercial property are the status of the structure, construction costs, market value and income production. A fair appraisal should account for all four factors.
About the author: Anica is a professional content and copywriter who graduated from the University of San Francisco. She loves dogs, the ocean, and anything outdoor-related. She was raised in a big family, so she’s used to putting things to a vote. Also, cartwheels are her specialty. You can connect with Anica here. Anica writes on behalf of the professionals at Sullivan Engineering LLC, who can further clarify the benefits of building envelope surveys for real estate investors.