As a practical strategy, an investor and/or property owner must know about the commercial property valuation method that has been adopted to decide the desired worth of their assets. Consulting with a Certified commercial buyers agent can provide expert insights into these valuation methods, ensuring informed decision-making based on accurate property assessments.
Sales Comparison Approach
Like in the appraisal of residential property, the sales comparison approach comes into play. This means comparing the subject property with recent sales of comparable properties within the same market. This is done by taking into account how larger, smaller, closer, or older the other properties are and used to figure out the approximate market value of the bomb house.
Under the Income Capitalization Approach
- Direct Capitalization– also known as NOI/Cap Rate, this is your simplest way of understanding the value of a property given its current operating income.
- The Discounted Cash Flows (DCF): The DCF projects the future cash flows that the property will produce and then discounts these at a discount rate to present value. This kind of approach acknowledges the time value of money and gives an in-depth analysis of cash inflows, outflows, and future growth estimates.
Cost Approach
The cost approach values the property by calculating what it would cost to reconstruct a building and its improvements, less depreciation. It is commonly used with new or unique homes because there may be no comparable sales upon which to base a price. The cost approach weighs attributes like land value, construction costs and physical wear and obsolescence depreciation.
Hybrid Approaches
There are even times where appraisers willuse a mix of the valuation methods as a whole to come up with an all-round evaluation for the property. This hybrid value approach is, for example, a best-practice when both the income capitalization and cost approaches are used in tandem to confirm the validation indicated by values obtained from another method.
Engaging a Certified commercial buyers agent can further enhance this process by providing specialized expertise and guidance tailored to commercial property investments. Seeing all aspects of these commercial property valuation methods allows an investor or an owner of a bigger property to be able to knowledgeably assess whether they are making the correct decision in buying, selling, or refinancing their piece of real estate.
