How to Calculate and Understand Commercial Property Value?

 To determine the value of any property, especially a commercial property appraisal requires a lot of processes which are done by the licensed commercial property appraiser. This process involves a lot of different calculation processes and the determination of fundamental elements that affect the property appraisals to a large extent. Thus, to help you with the common methods of funding the true property value in different methods, the more real estate group is here with this article.

commercial property appraisal

1.     The Cost Approach: The Cost approach is used in the valuation of properties that generally do not fall under the market wish list. This is the approach to finding value that is unique and a buyer should not pay the same amount as the world needs for its replacement. Further, the cost approach is calculated following these three major steps:

·        Replacement Cost Calculation: the very first step involves the calculation of the replacement cost of the property which involves the different factors like structural integrity, designs, and layouts of the building that were made during the last construction.

·        Depreciation Calculation: The next step is to subtract (minus) the depreciation cost of the building due to normal wear and tear, low maintenance, or poor function of the building from the replacement cost calculated in the above step.

·        Land Value Additions: Once you get the value after the depreciation, it's now time to find the actual value of land, add it to the depreciated value, and get the actual market value for the commercial property.

Formula: Market Value = Replacement Cost of the building - Depreciation Cost + Land Value

 

2.     The Income approach: This is the calculation system that is put forward on the buildings that generate income like retail buildings, offices, or apartment complexes. So this income approach technique is used to find the property value for those properties that generate an income for the investor. This is done through the following steps:

·        Gross Income estimation: Calculate the overall income a property generates through different modes like tenants, laundry, machinery, and others.

·        Income Steam estimation: Minus all the types of expenses from the gross income to get the estimation of the income stream of the property.

·        Capitalization Rate Estimation: Use any method and find the cap rate of the property which is generally the ratio of net income generated to the value of property.

·        Market Value Estimation: Now divide the net operating income from the capitalization rate to find the property's market value.

Formula: Market Value = Net Operating Income / Capitalization Rate

 

3.     The sales comparison Approach: This is one of the most widely used appraisal techniques by the property appraiser in Los Angeles CA, to determine the property value by comparing the rental value or the recently sold value of the property similar in the surrounding. The steps involved here are:

·        Research: First research the properties that fall under the same category which you are appraising.

·        Collect & Verify Data: Collect all the data like the sold-out date, the market value, demands, local trends, and others followed by the characteristics of the property to compare it with the one you are appraising now.

·        Calculate market value: The next step is to calculate the market value.

 

In conclusion, if you are still confused about your property appraisal and find the best estate group, contact the Moore real estate group now and get the best and highly assessed commercial property appraisal with our licensed and experienced commercial property appraiser now in Los Angeles.

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