Phone: 727-397-5571
COVID-19 Update: Our office is OPEN and we are ready to help you with your legal matters. Learn More

How to Determine the Appraisal Value of Commercial Real Estate

commercial_propertyWhile a residential property may be valued based on its structure and location, commercial real estate is much more difficult to estimate. Commercial properties are valued not by the worth of the structure, but by the potential income it'll generate.

The appraisal value affects the sales price, the amount of the mortgage, property taxes, and the potential for borrowing against the property. It's best to be as thorough as possible when calculating the property’s value.

The Importance of a Proper Commercial Real Estate Appraisal

Florida real estate appraisals should only be performed by licensed appraisers who completed their education and training requirements.

In addition, all appraisers in the United States are required to follow the codes of ethics set forth in the Uniform Standards of Professional Appraisal Practice (USPAP). If an appraiser does not provide an unbiased opinion on the value of the property, he or she may lose appraiser's certification or face disciplinary action by the state.

That said, it can be extremely tricky to accurately estimate the value of a commercial property in Florida. Since all parties in a commercial real estate transaction make decisions based on the appraisal value of the property, it's vital for the buyer to get an appraisal value he or she can rely on.

A thorough appraisal should take into consideration:

  • A full description of the property, including boundaries, features, and buildings on the site.
  • Past and future economic conditions in the area.
  • The current real estate market.
  • Comparative analysis of best uses of the property.
  • A summary of the valuation methods and reasoning used in the appraisal.

Factors That Affect Appraisal Value of a Commercial Property

Appraisal often begins with an inspection of the property, which may take several hours or even days to complete. Once the physical space is inspected, appraisers consider the inspection report and a number of other factors to value the property, including:

  • Income and expenses. Commercial appraisals are calculated using a number of formulas, including the property’s income minus its expenses. The amount of income generated by the property may be high, but if it's not more than the cost of running and maintaining the property, no lender will take the risk of issuing a loan.
  • Comparable properties. Appraisers consider the income of similar businesses with your customer demographic in the area, including those business’s sales, outgoing costs, and rentals.
  • Documents and records. Appraisers may research public records, such as zoning and chain of title; as well as your company’s private records, such as income statements and property tax bills.
  • Date of valuation. Appraisals can change drastically depending on the period of valuation. For example, the property may be worth less after a tornado strikes or if someone commits a crime on the property, so it's important to consider whether the appraisal represents the property’s present value.
  • Your interest in the property. There are different forms of appraisal based on your intended use of the property. For example, if you plan to lease commercial space onsite, you'll require a leased-fee interest appraisal to know how much to charge your tenants.

It's worth noting that only the people named in the appraisal report are authorized to see the results and reasoning used in valuation. For this reason, it's common for buyers to pay for their own commercial appraisal, even if a lender is already doing one.

Let Us Help Your Business

If you're investing in commercial real estate, our attorneys can guide you through property selection and purchase, allowing you to make sound business decisions every step of the way. We can protect your interests throughout the appraisal process; ensure that all factors have been considered in valuation; and stay by your side through to closing.

Simply fill out the quick contact form on this page to set up a consultation and get your questions answered.

 

// // // // // // //
// //
// // //