How to Value a Commercial Property?

Whether you wish to purchase a commercial property, sell it off or just want to lease it for a period, the options normally hinge upon the valuation or the appraisal of the property in question. The assessment of the value however is not that simple and definitely complex than a residential property. Whether it is an industrial complex, owner occupied business structure, a retail shopping space or simply an office space, you will need commercial valuers who can give you an exact estimate of the value.

The values of the commercial property is always dependent on factors that are out of control of any particular person like the availability of similar establishments, the market rent of the area, maintenance costs associated with the building, etc. This warrants a subjective and thorough valuation that can only be provided by Commercial property valuers.

Six Methods Commercial Property Valuers Use

There could be thousands of such independent and licenced commercial property valuer Sydney and nearby areas however, the methods they use to evaluate a property and find out its value are limited to the following types.

1. Sales comparison

This method simply means that finding a property closest to the one being evaluated with the most similar attributes, that was sold in the recent past. By using the data for comparable properties the fair market value is arrived at.

2. Cost approach

A method reserved for properties with unique attributes or the ones that have been recently modified/beautified. Since there are no comparable properties around, this method is the only way to find the value of a upgraded or highly modified structure.

3. Value per Gross Rent

For commercial valuation of real estate this formula is reserved for properties with a lower price as compared to the market-based income potential. The price of the property divided by the rent income it generates defines a multiplier that is then used to reach a final price.

4. Income capitalization method

Using this method the commercial real estate valuers calculate the potential income that the place will generate and all future incomes are discounted to reach the present day value of the property.

5. Cost per rentable area

Using this method one can extrapolate the rate of rent per square foot and compare the average lease costs for square footage available and evaluate the total cost of the building. Keep in mind the square footage here refers to the usable area only and not the total area.

6. Value per door

This method is limited to the apartment building only where there are a lot of similar units available. Irrespective of the size of the individual units, the building would simply be worth a “x” amount per door.

A Commercial valuer is generally different from estate valuer in the sense that the former has to factor in the income generated by the property rather than the overall cost of the property alone. In the end though every valuer will have a different figure for the property in question which is just an estimate. The real value is the price at which the commercial property gets sold.