How To Easily Determine The Market Value of Commercial Property
Are you thinking of getting a new commercial property? Commercial real estate is a fruitful investment. The thing is, a lot of newbie investors are having a hard time figuring out how much their properties could be worth. Unlike residential spaces where the value is only determined by the home’s condition, there are tons of factors to be considered in order to establish a commercial property’s worth.
The Two Main Factors That Help Determine the Market Value of a Commercial Property
Potential for Income
Before finalizing the deal, make sure that the commercial property you’re looking at has a high potential for income. For instance, if it’s located near a central business district and has lots of office spaces, then it has a huge potential for a high rental income. It will also be valued more.
Location
Location is another primary factor that determines the worth of business property. Is it near condominiums, apartments, and shopping malls? Accessibility is key to its high market value. Tenants will benefit more from renting properties closer to these types of establishments. As much as possible, rent those in the heart of cities — prime locations.
Now, how do you determine the market value of a commercial property?
Licensed appraisers use various valuation methods to accomplish this. At times, they match and combine approaches to get the correct value.
Cost Approach
This estimates that the cost a buyer must pay for a piece of commercial property is equal to the cost of the building’s construction. Here, the property’s value is equal to the cost of the land, plus the construction’s total costs, less depreciation. The cost approach is the most intuitive, the simplest method in determining a commercial property’s value.
Income Approach
This valuation method is used to estimate the value of a commercial property depending on its potential income. With this approach, investors and appraisers estimate a property’s value based on the income it generates. It is obtained by dividing the net operating income with the capitalization rate.
Sales Comparison Approach
The sales comparison method, also known as the market data approach, is most commonly used in valuing single-family lands and homes. It is an estimate of the value formulated by comparing a property with a recently sold one with similar characteristics. This approach takes into account the impact that individual features have on the property’s overall value. Basically, the total value of a commercial property is the sum of the values of its features.