The purpose and process of a commercial real estate appraisal

1. The purpose and process of a commercial real estate appraisal Introduction There is a big difference between commercial and residential real estate appraisals given that the former is more subjective in nature. The value of a commercial real estate appraisal is arrived at by considering the rentals received by a commercial enterprise relative to the expenses paid up. Though the original asset is important in a commercial appraisal, it is not even close to the same way that a residential property values assets. Commercial property appraisals can be used for a variety of purposes. To help two parties determine an acceptable sales price or support lease negotiations, to support mortgage underwriting tasks, assess the value of construction and renovation projects, and even inform zoning boards or courts about the effects of a commercial project. Key Points Aspects of a commercial real estate appraisal ● Appraisals differ from assessments as they are a more precise way for determining the fair market value of a property. ● Unlike a simple inspection, commercial property appraisals dwell deeper into studying the commercial real estate as it makes a comparable research and study of similar properties and other information ● Commercial real estate appraisals often cost between $2,000 and $5,000, but can be more expensive for more complex properties.

2. Methods used by appraisers in a ​commercial real estate appraisal to determine property value, include sales-comparison, cost and income-capitalization approaches. ● Difference between appraisals and assessments While local governments, like cities and counties, use assessments on a regular basis for levying taxes on properties within their jurisdiction, assessors may not be licensed appraisers. In contrast, commercial real estate appraisals are done to determine the current market value and a fair sales price for a property and appraisers must be licensed and skilled. Inspection is not an appraisal A property inspection is only a small part of the ​commercial property appraisal process. Depending on the size and complexity of the property to be appraised, it might take less than an hour to several hours to inspect the property. Then comes the appraisal process where appraisers research public ownership and zoning records, investigate demographic and lifestyle information, and compile comparable sales, replacement costs, and rentals. They then analyze this information as it relates to the value of the property, following up with a written report on their findings. How appraisals work There are three accepted approaches to the appraisal process: Sales-comparison approach The sales-comparison approach also known as the market-data approach, is commonly used in tandem with single-family homes and land. In this process, the value of the subject property is derived through the use of “comparable,” or recently sold properties in the same area. In order to be valid, the comparable should be as similar as possible to the subject property. Cost approach This approach is used infrequently, but is useful in estimating the value of properties that have been improved by one or more buildings. Each building and the land itself receives a separate estimate, with depreciation taken into account, and those estimates are then added together to determine the total property value. Income-capitalization approach This approach is based on the desired rate of return — how quickly and how much an initial investment earns — and a property’s expected income after expenses.