Determining the value of a commercial property is essential to making wise investment decisions. It doesn’t matter whether you are a landlord, property owner, business complex owner, or a seasoned real estate investor — it is absolutely critical that you understand your property listing price point.
Valuing commercial property is significantly different from a residential valuation. Fluctuating values and additional intricacies can complicate the valuation process. Understanding various valuation methods is an added advantage for success in commercial investment. Unique Properties, Inc. in Denver, CO, can help you understand multiple valuation methods and determine the best option for you.
Breaking Down the Major Methods of Commercial Real Estate Valuation
Your decision to sell or lease a piece of commercial property heavily relies upon the property’s appraisal value. Determining the accurate value, however, can be daunting. Whether it is an industrial complex, business structure, or retail shopping center, valuing a commercial property is more subjective. Commercial property value depends on fluctuating elements such as maintenance cost, current market price, and how much buyers are willing to buy. Here are the best approaches to determining the accurate value of your property.
Cost Approach
This valuation method calculates the cost of rebuilding the property from scratch, considering the current value of the land, labor cost, construction materials, and other costs incurred in replacing the existing structure. The cost approach method assumes that a commercial property’s value equals its reconstruction cost and is often used when the property has undergone significant upgrades, increasing property value.
Sales Comparison Approach
Commonly referred to as the ‘market approach,’ this appraisal method is significantly used in valuing commercial real estate. The approach depends on recent sales data to determine the value of a commercial property.
A major challenge in valuing a commercial property using this method is finding the perfect comparison for your property. Sometimes appraisers may be compelled to find comparisons outside the market area, which wouldn’t provide reliable data.
Income Capitalization Approach
The Income Capitalization Approach is the most utilized when valuing commercial property. The value of a commercial property is determined by the income the property is anticipated to generate. The projected future income is determined by comparison with similar properties and decreasing maintenance. All projected future incomes are discounted to determine the current value.
Value Per Gross Rent Multiplier
Value per gross rent multiplier is an appraisal method with a simpler approach involving dividing the price of a property by its gross income to determine potential value. This approach is used to determine the value of a commercial property whose value is relatively lower than the current market valuation.
Value Per Door
If you are considering selling a commercial apartment building, this could be the best appraisal method for your property. This valuation approach determines a property’s worth based on the total value of the units it comprises. For instance, a commercial property with 20 units priced at $8 million would be valued at $400,000 per door.
Valuing a commercial property using this approach may only provide an average price since different units may have varying measurements and sizes. This approach may affect the comparison between buildings that may be considered similar from external perspectives.
Cost Per Rentable Square Foot
To determine the accurate value of your property through this approach, you take the property’s price and divide it by the total square footage of the building. The square footage includes the usable space, including the elevator and staircases.
Contact the Best Commercial Real Estate Brokers in Denver
The above approaches show multiple ways to value commercial property. Determining the best value for your property can take time and effort. Most appraisers utilize different methods and then take the average to get the appropriate value for a property. It is important for any real estate investor in Denver, CO, to partner with the best real estate brokers to get the utmost value for their commercial property.
Unique Properties, Inc. is a full-service commercial real estate broker. We have more than four decades of experience offering high-quality real estate services to landlords and investors in Denver. Our primary goal is to help clients achieve their financial goals while ensuring their best interests are well protected. Contact us for more information on listings.
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