Estimating the value of the commercial real estate is essential for every type of endeavors, such as financial, investment analysis, sales listing, tax or property insurance. Without valuation, no one can determine the exact worth of property at any cost.
Most people are determined to know the asking or purchase price of the property, which is a practical application of commercial real estate valuation. However, a person needs to learn about real estate valuation, especially when the property is for sale.
Key Takeaways
- Real estate valuation isn’t straightforward as every property has different features like floor plan, amenities, location and lot size.
- Individual properties might be subject to appraisal.
Basic valuation concepts
The property of value determines the present worth and the future benefits that will arise by owning commercial real estate. Unlike commercial goods, the benefits of real estate are realized in the long term.
Moreover, economic and social trends play a significant role in estimating property value, and another factor that determines the value of real estate is government regulations and environmental conditions. However, both of these factors will influence four significant elements of the value.
- Demand: It is the need for ownership supported by the means to satisfy a buyer’s desire.
- Utility: An ability to satisfy the owner’s requirements and desires
- Scarcity:The finite supply of the property
- Transferability: The ease of transferring the ownership rights
The cost and price
The property’s value is not necessarily linked with the cost and price. The term cost refers to the total expenditure on the material, such as labor. On the other hand, price refers to the amount that someone pays to own something.
No doubt, cost and price might affect the property’s value, but they will never determine the actual real estate valuation. For example, if any commercial property sales price is $150,000, the valuation can be either higher or lower.
Market Value
An appraisal estimates the value of a specific commercial real estate. Appraisal reports are generally used by government agencies, business owners, investors, buyers, sellers, and mortgage companies.
With these reports, an individual can make better decisions for real estate transactions. However, the main motive of appraisal is figuring out the property’s market value.
If a property comes with a portable price, it will enter the open and competitive market. The market price is the amount at which the property sells. However, if a property is held in a private sale, it should be sold at a price below the market value.