If you are looking at buying a piece of commercial real estate in New York City, you are probably thinking of more than the selling price of the property. You may have a great interest in how much the property is worth. While the value of a property helps inform its selling price, it is important in other respects.
Understanding the value of a commercial property may help you make important financial decisions concerning your use of it. The Motley Fool describes some key facts concerning the appraisal of a commercial property.
Commercial appraisals are complex
Valuating residential real estate is generally an easier process because an appraiser can compare a house or a condo to another of a similar type. On the other hand, commercial structures like office buildings tend to have unique qualities that do not allow for easy comparison to other buildings. As a result, an appraiser is more likely to look at the characteristics of the property to determine its value.
Appraisals can inform investment decisions
If you know how much an office building or retail space is worth, you can make informed decisions about how much money you want to invest in the property. It may not make sense to invest a lot of money in a low-valued property if the improvements do not grow its value all that much.
Also, if you know the attributes of the property that make it valuable, you may plan on making specific improvements to enhance those characteristics. In time, you may end up selling the property yourself for a greater amount.
Valuation methods differ
Generally, many appraisers use the income method to valuate commercial properties. This involves calculating net operating income and capitalization rate to figure out the income the property will generate. In some situations, an appraiser may use a cost approach, typically employed for new and unique properties to determine how much it would cost to rebuild the property from the ground up.
If property valuation is a concern of yours, consider getting all the relevant information concerning the appraisal. You might learn whether the property is truly worth your investment.