An appraisal is often required when purchasing a commercial property. It’s a professional estimation of a property’s market value. The lenders may request an appraisal if the property is bought on a mortgage or other types of loan. This helps them confirm the value of a property before approving a loan.
The appraisal also helps lenders calculate other important financial metrics about the property. Lenders often request appraisals when the buyer applies for a cash-out refinance or the loan-to-value is more than 80 percent.
What Every Property Buyer Should Know About Commercial Property Appraisal
A commercial property appraisal is an assessment conducted to determine the estimated value of a commercial property. It’s presented as a report that details how the property is valued. Commercial property appraisals can be conducted for various types of commercial buildings - this includes vacant lands, rental apartments, hotels, offices, and industrial and retail properties, among other asset types.
A commercial appraisal is not only helpful to lenders but can also help a buyer make informed decisions. With a commercial appraisal, a buyer can obtain an unbiased opinion of the value of a retail establishment, an office building, and other such properties. Some key reasons why a buyer or an owner would get a commercial appraisal include the following:
- Market Value Confirmation
- Earning Potential Assessment
- Better Decision Making
- Unbiased Valuation
Market Value Confirmation
Commercial appraisers help business owners and buyers confirm the market value of their property. However, evaluating commercial properties is more complex compared to residential properties. The appraisal company may even employ different approaches during the valuation process. They may even have to combine some appraisal approaches during the process.
For instance, the appraisal company may use the sales comparison approach and the cost approach during an appraisal. The sales comparison approach utilizes recent sales data of properties like the one being appraised in order to assign its value. In contrast, the cost approach calculates an estimated overall price of the property if it were rebuilt from scratch. It refers to the current cost of labor, land, and construction materials, minus any depreciation.
Earning Potential AssessmentCommercial property appraisal can also help business owners and buyers understand the property’s earning potential. For example, if a business owner wishes to convert an old establishment into a hotel or multi-family home, the appraisal information will help determine if the investment is profitable.
Better Decision Making
As stated above, a commercial property appraisal provides business owners with vital information about their property. The business owner or investor can know the property’s market value and earning potential through an appraisal and feel more confident that the purchase/sale price aligns with market conditions. With this, a business owner or investor can know if investing in the property will be profitable.
When buying a property on mortgage, the lender will typically have their appraisal services assess its value. However, some business owners may not be comfortable with the appraisal report from the lender. They will have to hire an appraisal company to get an unbiased opinion. This way, they can check if the appraisal report from the lending institution is correct. Also, they can be sure that the loan the lender is offering is in line with their property’s actual value.
Sometimes, there can be slight errors in the appraisal report. This is due to the complexity of evaluating commercial properties. An excellent way appraisers can eliminate such errors is by adopting cloud-based reporting software like Valcre. With this software, their clients seamlessly and readily access reports when buying, selling, or refinancing their property.
Contact us today for more information on the features of the Valcre software.