Whether you are buying or selling a commercial property, it is important to get a good sense of its value beforehand. While this is typically done by a professional, there are advantages to understanding how commercial property obtains its value. Not only do different elements contribute to this figure, such as location and lot size, but there are different methods to assess the property.
We understand how the law relates to real estate transactions and have helped many of our clients with buying and selling their properties.
The cost method
As found on Investopedia, this method uses separate estimates to come up with the total value of the property and land and includes depreciation. For example, an estimate would include the value of the land, a separate value for the building and offset that figure with estimated depreciation. This approach is typically used for buildings that do not produce income, such as a school, and are not often sold.
The sales comparison method
This method compares the property in question with other properties that are as similar as possible in size, style and amenities. To get a solid figure, an appraiser looks at multiple properties to come up with the value. Appraisers should use no less than three or four other properties to compute this figure.
The income capitalization method
This method is fairly straightforward and uses the expected net income produced by the property in relation to the rate of return on your investment. Properties such as malls or office buildings typically receive their value using this method. More information about this topic is available on our webpage.