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If you are an investor considering buying a commercial real estate, you must know as much about a piece of property as you possibly can. One essential piece of information you must know is the value of the property. You can get this information by having an appraisal conducted on the property. A commercial real estate appraisal is typically performed by a trained expert who will look at several factors to determine how much a commercial property is worth.
Investors use appraisals to determine if the property is worth the purchase price. An appraisal is also necessary for insurance purposes as well as for property taxes. Typically, a commercial property insurer will want the value of the property confirmed before issuing a policy. Banks issuing loans will also generally want to know how much the property is worth.
Appraisals work best in situations where an investor is purchasing a property for potential resale or rental income. Knowing the value of the property can help an investor determine how much to invest in renovations if he or she is planning to flip the property. If he or she wants to use it for rental income, knowing the property’s worth can make determining rental rates easier.
Appraisals Save Money
The person selling the commercial property is most likely trying to get as much money as possible for it. This may involve asking more than the property’s worth. Knowing the true value of a piece of real estate can prevent you from overpaying on the property itself as well as on the interest you will be charged on the bank loan. Additionally, your property taxes are based on the value of the property. Therefore, it helps to ensure this number is accurate.
Get the True Resale Value
If you are the one reselling the property, having an appraisal ensures that you get what the property is worth. According to Bloomberg, properties increased 6.3% in May of 2011. Property values change over time. If there have been significant developments in the community since you purchased the property, it may be worth much more than what you have paid. Having this information puts you in a better negotiating position.
Identify Areas That Require Maintenance
An appraiser does a full inspection of the property as part of the process of determining its worth. He or she can identify areas of the building that require attention. As a buyer, you may need to invest money into making these repairs once you own the property. However, you can use this information as a bargaining chip for reducing the overall price.
Almost all insurance companies will want to know the value of the property they are insuring. Additionally, having your commercial property appraised can help settle insurance claims, should something happens to the building.
Appraisals add an additional cost to the purchase of the property. This needs to be factored in as part of the total price of the investment.
Possibility of Low Valuation
Although the real estate market tends to be stable, there are times when values fluctuate. The appraiser looks at the values of surrounding buildings as well as the community as a whole when considering how much to appraise for your commercial property. If there are factors that negatively affect property values in the area, this can result in low valuation. This, in turn, can hurt your chances of getting a good price if you are selling.
Appraisers sometimes make mistakes that can lead to financial consequences for you. This includes forgetting to include some parts of a building in the total square footage as well as overestimating the value of surrounding properties. These types of mistakes can make it more difficult to get a loan for the full amount you need to purchase or cause you to overpay for the property.
The cost of a commercial real estate appraisal will vary from region to region and between companies. Some appraisers will also charge according to how much work is done. For example, they may charge one price for a basic report but charge another for a report that includes pictures, zoning research, and other services.
An appraisal for a commercial property can range from $500 to over $3,500 depending on the type of property appraised and the report ordered. Since an appraiser can end up saving you money by appraising the property at the right price, the cost is oftentimes justified.
Investing in an appraisal for your commercial real estate property can save you time and money. If you are a buyer looking for a piece of property to invest in, you can put yourself in a better position to negotiate if you know the true value of a piece of property. Additionally, it will also make it easier to price rental space as well as help ensure you are not paying more taxes than you actually owe.
An appraisal is an assessment of the value of real property that is done by a professional appraiser. It can be used to facilitate the transfer of property, establish the value of property for tax purposes, or provide details when refinancing a mortgage. A property owner can also order an appraisal for informational purposes.
Professional appraisers use a valuation model that is appropriate for the type of property being evaluated. The comparable sales method is used for residential property. Sales of similar homes in a community are analyzed to establish the value of the target home. The income capitalization method is used for commercial property and takes the value of the property's income stream into account during the assessment. The cost method is used to appraise unique property and to establish value in situations involving insurance. It determines the cost to replace the land and to perform improvements at today's market rates.
Real estate appraisal is a regulated industry in many countries. In the U.S., the federal government establishes national standards that the states implement using professional licensing programs. You have to obtain a state license to work as an appraiser or open an appraisal business. Industry trade organizations, such as the American Society of Appraisers, can help you pursue state and national credentials. Read more about appraisal from the links on this Business.com page.