Methods to evaluate the commercial property value

Commercial property is the property used for a commercial purpose like offices, restaurants, retail stores, clubs, shops, malls, warehouses, garages. These properties are design with the intention to generate profits. Whether you want to purchase, sell, put it on rental basis you must aware of your commercial property value.

The undeniable fact is — it is much easier to evaluate the residential property value in comparison with commercial real estate property value. Because finding a comparable for your commercial building is very tough task and tedious too. So it is better to hire a property valuer, who can evaluate your property value easily and accurately. A valuer is a person who takes all the influencing factors into consideration, inspect the property minutely and then evaluates the right value of the property.

While determining the actual market value of the commercial property, the uncontrollable factors like economy value, market conditions come into picture. Cause of these factors the commercial property value varies so much.

Basically three methods are used to find the commercial property value –

Cost approach – The cost approach is used to evaluate the property value, as finding the comparables of commercial building is very difficult. In this method, the valuer finds what will be the cost if replica will be made. Example – the commercial building of which you want to know the value, Valuer find what will be the cost of creating structure alike the subject property. The current price of land, building material and construction cost and other cost paid to build this commercial building. Calculating all the costs one can know the right value of the property. This is called as cost approach.

Sales comparison approach – As the method’s name is ‘Sale comparison’. So the sales comparison is made between the subject commercial property and comparables. Comparables are the property which are sold out in recent months and is nearby the subject property. It looks like a subject property and moreover the type of property is same.

Example – Property A is subject property of 3000 sqft land area and 2 floors building with
Having 2 big size halls, 10 medium size shops. Whereas the property B which is sold out in the last month with 2500 sqft land area and 3 floors building having 5 big sizehalls, 7 medium size shops, 3 small size shops. This is called comparables.

The Sales comparison method is mostly used for residential purpose. As finding a comparable is easy in residential buildings. It is essential to have a comparable if you want to estimate commercial property value via sales approach. Without comparable it won’t be possible to go and find property value via this approach.

Income capitalization approach – There are three elements used in this method. Income i.e Income generated from the property, ratio i.e capital ratio and value i.e value of the property. The value can be determined with the income from the building to the capital ratio.

Commercial property valuation is tough and required in the fixed interval of time. Better to hire a commercial property valuer to get the accurately estimated commercial property value.