A commercial property appraisal or valuation provides insight into the projected market value of a property and can be important if you are looking to buy, sell or lease.
Understanding the differences between a commercial property appraisal and a valuation will enable you to determine which is best suited to your requirements.
In broad terms, if you require official legal documentation assessing the value of your commercial property you will need a valuation. For a sound understanding of the property’s market value, an appraisal is sufficient, according to Pine Property’s Patrick Kelleher.
Commercial Property Appraisals
A commercial property appraisal is an indication of current value based on an asset’s physical attributes and condition, and comparative market analysis. An appraisal is an informed opinion and is not legally binding.
Any licensed real estate agent can provide a property appraisal, however they should have a strong understanding of commercial property in the local area as the relevant attributes impacting the valuation can vary significantly.
“It is best to choose an agent who is experienced in your area to provide a relevant appraisal. For commercial properties, there are a lot more factors that influence price compared to residential,” says Patrick.
For commercial, retail and industrial properties, appraisals consider a range of physical factors including:
- Size (square meterage)
- Location and position
- Foot traffic
- Amenities including bathrooms, showers or kitchenettes
- Provisions such as Food and Beverage approval, grease trap, extraction and power
- Building attributes including lifts, car parking, or shared amenities
- Tenancy attributes such as windows, balconies, and lighting
- Natural light
- Area demographics
- Existing fit-out
- Signage opportunities
- Width of shopfront
Once a real estate agent has evaluated the features and condition of a property, they substantiate their value estimate with a comparative analysis using current and recent sales and leasing data.
“Unlike residential property where sales evidence is readily available, a lot of commercial property data isn’t published so it is important to choose a specialised local agent with access to that information,” says Patrick.
Commercial Property Valuations
A commercial property valuation is a formal value assessment conducted by a Certified Practicing Valuer. The Valuer provides a legally-binding, comprehensive report detailing the factors influencing a property’s market value at a given point in time.
Commercial property valuations are often required by banks and lenders to grant pre-approval for finance. They are also frequently used in the calculation of capital gains tax, to settle family or partnership disputes, and as formal evidence in other legal proceedings.
There are three main methods of commercial property valuation:
- The direct comparison method, where market value is determined based on the recent sales or leasing of other similar properties in the area.
- The summation method, which calculates an overall value based on the combination of the land value (location, typography, surrounding infrastructure) and the value of any improvements to the land (building, car park, possible renovations).
- The capitalisation method, usually reserved for investment properties, calculates market value through potential rental income.
“Generally speaking valuations will be similar as they are all determined based on the same evidence, however depending on the intent it may be in the best interest of the client to seek more than one valuation,” says Patrick.
Which do you need?
If you simply want an assessment of market value as it stands and do not require a legally-binding document, a commercial property valuation may not be necessary.
“An appraisal can be just as good as a valuation, especially if you are liaising with an agent who is a specialist in their field,” says Patrick.
Backed by expert knowledge and an intricate understanding of local markets, Pine Property provides detailed appraisals for commercial, retail and industrial properties for a fee. Enquire now to learn more.