What is a Commercial Real Estate Appraisal?
2.5 min read
A lot goes into owning and investing in commercial real estate. Often, it is hard to determine the value of a property without undergoing something called a commercial appraisal. Like a residential appraisal, a commercial appraisal is an unbiased review and determination of how much the property is worth—however, the two differ for more reasons than one.
It is common for commercial appraisals to take longer to conduct due to their complex nature. Because of the uniqueness of each commercial property, there are various aspects an appraiser must take into consideration when reviewing the property, including zoning, demographics, income potential and comparable sales.
A commercial appraisal will likely take one of these three approaches when evaluating a property; comparison, cost, or income.
Comparison approach: When using the comparison approach, the appraiser will analyze data on recently sold comparable properties within the same area to estimate the property's market value.
Cost approach: The cost approach estimates the market value of the land and adds the costs associated with potential improvements that will need to be made to the property.
Income approach: The income approach considers the amount of potential income the property can generate.
Before conducting an appraisal of your property, ensure that you have the proper documentation on hand if the appraiser requests it. Minor improvements to the property or proof of additional income potential will help increase the property's value.
A commercial real estate appraisal is helpful for both the seller and the buyer as it shows both parties what a reasonable market price should be for the property. Speak with your commercial real estate agent to secure an experienced and knowledgeable appraiser for any future selling and investing opportunities.
References
6 things you should know about commercial real estate appraisals. Adlaw Appraisals Ltd. (2021, January 7). Retrieved June 7, 2022, from https://www.adlawappraisals.com/significant-things-about-commercial-real-estate-appraisals/
Mastroeni, T. (n.d.). What is a commercial real estate appraisal? The Motley Fool. Retrieved June 7, 2022, from https://www.fool.com/investing/stock-market/market-sectors/real-estate-investing/commercial-real-estate/commercial-appraisal/
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