If you are curious as to what the value is of your commercial Real Estate holding the best solution is to speak with one of our experienced client advocates. Market forces make a calculator online more of a general tool than a direct indicator of value.
The value of a property could be defined loosely as: the price it could feasibly fetch in a competitive market. There are multiple ways to appraise a commercial property; by using an income capitalization approach, a comparable approach, or a cost approach. Let’s review these different calculations.
The income capitalization approach is most commonly used in commercial real estate transactions it is determined by the equation of NOI (Net Operating Income)/Cap Rate (if you have access to cap rate data). If a property were to be said to have a gross potential income of $500,000, you would subtract a 10% vacancy rate of $50,000 leaving a gross income of $450,000. Next, take away operating expenses of $150,000 and you have the NOI at $300,000 / cap rate at 8% = $3,750,000. in this scenario, the value of the property would be $3,750,000. This method depends on a steady occupancy rate so a multi-family building may not be as accurately appraised using this method.
The comparable approach is the simplest method which uses similar properties’ sale prices to estimate the sale price of yours. Realtors refer to “comps” and will report a range of value for your specific CRE property. Be sure to look closely at dates of the sales being compared, age and condition of the properties, square footage of your building and size of surrounding land. It may be harder to determine comparable selling prices if your property is far from other similar properties.
The cost approach is more complicated starting with the value of the land on which a building sits and then determining what it would cost to build an exact reproduction. In this method, that amount is added to the land value, depreciated value is factored in and you get your valuation.
Each situation is unique. The best way to value your building is to bring in professionals. Your building, in the end, is only worth what someone will pay for it and the team at Voit knows just how to position the sale to attract the right tenants or buyers.