The Top Factors That Affect a Commercial Real Estate Appraisal

It’s hard to grasp that the commercial real estate industry is worth over $20.7 trillion.

While the industry as a whole is vast, each commercial property has its unique value. Countless factors impact the worth of a commercial building.

You’ll need a commercial real estate appraisal to get an accurate estimate. Read on for our appraisal guide to break down these key factors.

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Commercial Property Size and Its Impact on Valuation

Commercial property size plays a massive role in its appraisal. The size of the following commercial properties impacts their value:

Office space
Retail space
Industrial space

More significant properties tend to command higher appraisal values due to their potential for more substantial income generation and flexibility of use. More significant properties may also offer more opportunities for development or expansion, which can further enhance their value.

The Commercial Property Location Matters a Lot

Commercial property location is another critical factor in determining its appraisal value. The location of a commercial property affects the following:

Its accessibility
Visibility
Desirability to tenants or buyers

Properties in less desirable locations or areas experiencing economic decline may have lower appraisal values. What do desirable locations have in common? Look for the following things:

Lots of foot traffic
Proximity to transportation hubs
Vibrant business communities

All of these things command higher appraisal values.

Commercial Real Estate Appraisal Methods for Assessing Value

The methods people use for commercial real estate appraisal also influence the valuation process. There are several appraisal methods commonly used in commercial real estate, including the following:

The income approach
The sales comparison approach
The cost approach

The income approach evaluates a property’s value based on its income-producing potential. It considers things like rental income, expenses, and capitalization rates.

The sales comparison approach looks at other similar properties that have been sold nearby to see what could be reasonable for the subject property. It adjusts for differences in size, location, and other relevant factors.

The cost approach estimates the value of a property by figuring out how much money it would take to replace it with a similar property. It accounts for depreciation and obsolescence.

Extra Considerations in Commercial Real Estate Appraisal

What else could impact a commercial real estate appraisal? Consider the following:

Market conditions
Economic trends
Zoning regulations
Environmental factors
The condition of the property itself

A thorough appraisal takes into account all relevant factors to provide an accurate valuation. It should reflect the current market value of the property. Learning commercial real estate finance will get you on the right investment path.

Appraisals Are Vital for Commercial Real Estate Investing

Commercial real estate financing is possible when you have accurate figures. This is why every investor needs to know about the commercial real estate appraisal process. Always seek out reliable appraisals that reflect the actual value of commercial properties before making decisions.

Did you learn a lot about commercial real estate appraisals in this guide? Make sure you keep our blog in your bookmarks so you can always get our latest real estate content.

linda