Commercial Real Estate: What Does An Appraisal Cost?

The true cost of failing to hire a proper appraiser can be much more than the report fee a commercial appraiser will charge.

This is the age-old debate of cost versus value. Many people get hung up on cost and fail to see value. 

Commercial appraisers help you see through the murky water, ignore the noise and see the true value in a commercial, income producing property. 

Let’s understand exactly what commercial real estate appraisals are and what determines the cost of them.

The Commercial Real Estate Appraisal Process

The commercial appraisal process varies significantly depending on the nature of the project; however, the basic structure of the approach remains roughly the same across the board. 

First and foremost, much like a science experiment, the “problem” is identified. This may include determining the intended use, relevant characteristics of the property, and assignment conditions. 

Second, the scope of work necessary to solve the problem is planned out. The scope includes the amount and type of information to be researched and the analyses to be applied in an assignment. 

Third, relevant data is collected, verified, and analyzed. This may include market area data (general characteristics of the area/neighborhood) and comparable property data (sales, listings, offerings, vacancies, etc.). 

The analysis also takes into account four factors: scarcity, desire, utility, and effective purchasing power. 

Finally, after following these steps and principles, the appraiser forms an opinion of value and creates a commercial appraisal report.

Commercial Real Estate: Types of Commercial Appraisals

Cost Approach

Essentially, this technique equates the property value to the cost of constructing a replica. 

The cost approach also considers depreciation, thus, assuming a fair market value for the commercial property. 

Sales Comparison/Market Approach

This method speculates that an investor will pay only what similar properties have sold for. 

As such, the sales comparison/market approach is rooted in which property features are alike and the costs associated with those features. 

Important characteristics may include location, size, condition, floor plan, and the surrounding area. 

Income Capitalization Approach

This tactic involves a rationalization of the income that a property may generate over time. 

Appraisers commonly use this method for properties such as shopping centers, office buildings, and large apartment buildings, which have a strong earning ability. 

When this approach is used for a rental property, an investor considers the net income generated, and other factors, to calculate its value on the current market, if sold. 

In addition, a lender will closely examine the findings and determine whether they feel confident that their investment will be repaid.

Minimizing Costs

We’ve looked at some of the things that can impact how much your report could cost. 

But there are a few things you can personally do to make sure you’re not unnecessarily overpaying for your commercial appraisal.

The first is simply discussing with your appraiser the intentions and recipients of the report. 

This will allow them to establish what the minimum amount of appropriate information to research and provide will be.

Your next aspect if you already own the property is to be honest with your appraiser. Don’t try and conceal anything from them that you feel might result in a lower valuation. 

They are experts in their field and through experience and research they are likely to discover issues anyway. 

There will be less time, hassle, and costs involved for everyone involved if you are open and honest about the issues.

Finally, make sure that all your relevant paperwork about the land is organized and accessible. 

The more information you can provide your assessor about the salient facts without them having to wade through piles of chaotic records, the better. 

By doing a little extra legwork yourself upfront, you can reduce the labor involved in the appraisal and potentially lower the cost of the report.

Real Estate Matrix is one of the Southeast’s premier commercial valuation firms and has participated in the valuation of billions of dollars in real property assets.

We would appreciate the opportunity to add you to our very long list of pleased clients. You can give us a call or click here to fill out our Free Quote Appraisal Form.