Mixed-Use Property: Is It Worth It for Appraisers?
Mixed-use properties can be difficult for appraisers since several different and potentially conflicting data points need to be aligned.
With all of the moving parts and complexities of a mixed-use property, common in urban areas - retail space on the ground floor, offices above that, and residential still above that - appraising such buildings can get complicated.
So is it worth it?
The answer is yes - with the right tools.
But first, a bit of history about mixed-use developments: Urban planning, like anything else, tends to follow trends. For much of the 20th century, land use was segregated into discrete individual uses, like residential, industrial, commercial, and so on. This began in about the 1920s, thanks to the growing popularity of something called Euclidean Zoning. It has its benefits, like ensuring a cement plant won’t be built next to your house, but it also has drawbacks, like making suburban neighborhoods less walkable, since you need to drive to get most things you need.
There are many benefits to living in a mixed-use area, but this isn’t an article about urban planning. It’s about appraising the value of these mixed-use buildings. And as the reference article says, they’re increasingly popular, which means an increasing demand need for assessments.
This trend started in the 1970s, with an effort to bring life back to some urban areas, and has increased in popularity in recent years, as people begin to rethink how communities should look. Of course, mixed-use isn’t a new concept. Just look at New York City, or anywhere that development predates the automobile. Apartments above retail were the norm.
Regardless of age or specific use, there are some issues with appraising these buildings today - especially if you’re not using appraisal software that accommodates mixed-use properties. Other issues are variations among databases, and how they account for mixed-use properties. Depending on the chosen product, there can be limitations on how a mixed-use property is cataloged or categorized.
Aside from these technical considerations, there are issues with deciding to accept an appraisal job that needs to be considered, as well. In areas with an ample supply of mixed-use developments, there should be enough data to gather sales comparisons to determine the value. If there's a lack of mixed-use development in your area, a different approach is required.
One method is to break down the property into its individual uses and assign each property use type a value. From here, the appraiser needs to use their knowledge and experience to figure out if the combination of these uses—and their values—is worthy of a price adjustment in one direction or the other.
If this method doesn’t work out, you could look at income as a determining factor of value. This approach looks at the value, or income, that contributes to the overall property's value. Retail leases, apartment rent, and commercial leases are typical income sources. By determining the percentage of the building used for each, you can determine the potential income of the property and assign a value.
Appraising mixed-use properties is a more complicated process than single-use properties, but with the correct tools, it doesn't necessarily have to be a difficult process. Modern digital appraisal tools, such as Valcre, can help to mitigate the challenges of assessing complicated properties.