Whether it is about leasing, borrowing, sale or purchase of a commercial property, everything depends on commercial appraisals. Determining the precise value of a commercial property is simple if one gets in touch with a reliable, skilled, and knowledgeable appraiser. This is because commercial appraisals are more subjective as compared to residential ones. You might be wondering why? Well, when it comes to the value of a commercial property, the final decision is made by taking into consideration so many factors, and the market rate is no exception. Apart from this, there are other factors that are given priority, and how much the buyer is willing to pay is one of them.
Now when it comes to commercial appraisals, an appraiser uses an approach that is suitable for the property a buyer is interested in. Even though there are different types of approaches, the right one is only used.
Do you want to know what these approaches for commercial appraisals are? Keep reading.
Types of commercial approaches
- The Cost Approach: This is an evaluation method where an appraiser takes into consideration the amount that is needed to construct the entire commercial building from scratch. Apart from this, the present rate of the land is also taken into account. Then the total amount that will be needed for construction materials is also considered. Moreover, other costs are also included. Generally, this approach is basically applied when suitable comparables are not easy to find.
- Sales Comparison Approach: Also known as the market approach, this one is used by an appraiser when the recent data of the commercial property is taken into consideration. By determining the price of neighborhood properties, the buyer is able to obtain an estimate of the property he/she is willing to purchase or sell.
- Income Capitalization Approach: This evaluation method depends on the price an investor can expect to obtain from a certain commercial property. This income can either be obtained from a comparison of similar properties or by the maintenance costs themselves.
- Value Per Gross Rent Multiplier: With the help of this evaluation method an appraiser will give an estimate of the commercial property to the buyer. However, this estimate will be obtained from the rate of the property and dividing the gross income. For example, if you buy a commercial property for $500,000, and every single year the rent that is generated is $70,000, the GRM will be 7.14 or $500,000 / $70,000.
- Value Per Door: This is an evaluation method that is specifically used for apartment buildings and not single-unit properties. The whole worth of a commercial property is found out with this approach. However, the final decision depends on the total number of units a property has.
These are the approaches that are used by an appraiser during a commercial appraisal. But when it comes to residential appraisal services, the approaches differ. Therefore, whenever you are getting started with any of the appraisals, keep the right approaches in mind.