There are multiple approaches to commercial real estate valuation, with the most popular methods including:
- Sale Comparison Approach – This approach uses available data on recent sales of comparable properties to determine value. A thoughtful analysis of property specifics to create a reasonable comparison is best performed by seasoned real estate professionals with an understanding of the values associated with amenities, systems, location, etc.
- Cost Approach – Using the cost approach to property valuation relies on current costs to construct a similar product. The costs associated with rebuilding the property including land, construction materials, labor costs, etc., are taken into account. When using this method, the assumption is that a buyer would not pay more for a building than the cost to construct a similar product.
- Income Approach – The most popular and accurate method of property valuation is the income approach. Sometimes referred to as the income capitalization approach, this real estate appraisal method allows investors to estimate the value of a property based on the income the property generates. A real estate professional takes the net operating income (NOI) of the rent collected and divides it by the capitalization rate to determine value. When using the income approach an investor will also consider the condition of the property, as potential large repairs that may be needed can substantially cut into future profits.
Commercial Property Valuation Designed For Profitability
The Ciminelli Team focuses on creating a partnership with our clients, and guides them through every step of the real estate cycle to ensure their investment goals are achieved. We primarily focus on the income approach to real estate valuation, utilizing industry-leading financial analysis software to project the performance of commercial assets throughout the entire investment cycle.