Real estate has long been regarded as a great way to build wealth. As retail business owner and entrepreneur Marshall Field stated, “Buying real estate is not only the best way, the quickest way, the safest way, but the only way to become wealthy.” Yet, success in real estate investing requires significant effort to know how to get the best deal. That requires understanding and applying commercial property valuation methods. It is accurately said that the value of a commercial property is the most important factor in achieving real estate investing success. 

Why is it Important to Get a Commercial Property Accurately Valued? 

Valuation informs a buyer what he or she should pay for a property. Getting an accurate property valuation is critical because, without it, a property could be overpriced, leading to an investor’s financial loss. Valuation is critical in determining the risk level in a property purchase and in determining how an asset will perform as part of a property investment portfolio. It is also important for lenders as they determine the underwriting of a mortgage. Existing property owners will use a property valuation to enable well-informed decisions about developing the property to increase its future value. The bottom line is that commercial property valuation methods are essential in commercial real estate investments.         

Five Different Commercial Property Valuation Methods 

Here are five different commercial property valuation methods: 

  1. Cost approach. This approach considers the current value of land and all costs to replace and rebuild any structures on the property. It also considers the depreciation of commercial buildings, including the age and condition of the building.  
  2. Sales comparison or market value approach. This approach requires analyzing what similar real estate properties have sold for in the area. The analysis should evaluate neighborhood demographics, property size, age, location, and property conditions to be accurate. 
  3. Income or income capitalization approach. This approach is used for income-generating properties to inform investors how much income a property might generate. Similar to this is the gross rent multiplier approach. 
  4. Discounted cash flow approach. This approach evaluates projected differences between the property’s original purchase and eventual sales price, including such factors as inflation, lease terms, and risk. 
  5. Price per square foot. This approach is generally used along with other approaches.        

The sales comparison or market value approach is the most commonly used of these approaches, although multiple approaches can be utilized. 

What Factors Apply to the Commercial Property Valuation Methods?  

The factors used to apply the commercial property valuation methods include local market economic conditions and trends, local real estate activity, market stability, supply and demand, and ownership transferability.

Who Can Provide a Commercial Property Valuation? 

A professional real estate broker can provide a property valuation. In addition, a qualified commercial real estate property appraisal firm can be hired to assist you. 

Seek Expert Real Estate Services to Find Your Perfect Location 

Caldwell Commercial Real Estate is your trusted partner in commercial real estate in Charleston, SC. We offer leasing and sales, development, and property management services. Our commercial realtors and property managers have extensive experience, so you can rest easy knowing your needs will be met with superior results and satisfaction.