A Multi-Family Home

What Goes Into Commercial Real Estate Appraisals?

by Arnold Gomez

Property is appraised for a variety of reasons, but most often appraisals come into play when a property is being put on the market. When it comes to commercial real estate appraisals, the process differs greatly from traditional residential real estate for many reasons.

Learning what goes into commercial real estate appraisals will help you prepare for one. Whether you're planning on refinancing your property, want to sell, or you're needing to know just what your assets are worth, here are things that go into commercial real estate appraisals and why.

Comparisons to Other Properties

Commercial real estate appraisals compare commercial real estate to all other commercial real estates, which can be confusing because no two commercial properties are alike. While a residential property can easily be compared to a similar residential property with the same square footage and bedrooms, the same can't be said for commercial real estate. The properties commercial real estate appraisals use to determine specific values may be of the same industry but not entirely similar to gain a fair market value for individual properties.

Your commercial real estate appraiser will use several different formulas and comparisons to come up with a true valuation of your property's market value. The industry your commercial real estate is in will greatly impact its value overall as well.

Cost to Build

One of the ways commercial real estate appraisals are done is to determine how much it would cost to build the same building brand-new again. If you have a generally run-down or small building on a luxurious or high-demand plot of land, then the appraisal can still come in quite high because the land is taken into consideration. However, if you have a newer or large building on a small lot, your appraisal for commercial real estate might not come in as high because the land isn't valued as much.

What your building makes can also be taken into consideration. If you were to sell your business as-is as a whole, the appraisal would include the potential income the building can make, much like how a residential home with a rental on the lot would likely have a higher value if it had income potential.

It takes a long time to have commercial real estate appraisals done and they're not cheap. If you want to have commercial real estate appraised, find a commercial real estate appraiser who is familiar in the type of commercial building you have to give you a good unbiased opinion.