Key Segments of a Commercial Real Estate Appraisal

Just like any profession, a commercial real estate appraiser has his or her own style and methods for performing their job. In order to ensure the appraisal report you have received is thorough however, there are several elements a quality commercial appraisal should have.

1. Cover letter with brief synopsis. The appraiser should have a description of the property here, where it is situated, and what the intended use is. Usually there is also a reason for the appraisal provided (i.e., who it is intended for and whether it is for bank financing purposes) and the appraiser’s contact information.

2. Photographs. Photographs are an important element of a commercial real estate appraisal, since they provide evidence of the subject property’s characteristics that have been outlined within the report. The representational photographs may include both exterior and interior photos, and will highlight any substantial features, hazards, or items of deferred maintenance found at the site.

3. Neighborhood Analysis and Zoning. Since a significant factor contributing to the subject property’s value is its surroundings, there will likely be a detailed description and analysis of the property’s immediate neighborhood and/or region. This section will include demographics, population, employment base and income statistics, whether the area is zoned residential, commercial, or mixed-use, and the economics of the trade area the site belongs to. A synopsis of the forecast for future economic and population trends may also be included here.

4. Accessibility. Those purchasing commercial real estate want to know how easily the site can be accessed, as well as the extent of visibility it will attract. Therefore, the commercial real estate appraisal will note all major highways and arterials leading to the subject property, and whether it is located within a center for commercial activity. A map may be provided, pinpointing the property’s exact location.

5. Subject Property Description. Ultimately, anyone reading a commercial real estate appraisal wants a thorough description of the property itself. There may be a survey or site plan introducing this section, but a detailed description of the land, its size, and any improvements is mandatory. Also included would be a summary of the makeup of the building’s construction, layout, square footage, systems, utilities, restrooms, age, and condition. The commercial real estate appraiser will likely note the estimated remaining “life” of the building, based on its age and condition.

This list is in no particular order, since appraisers reports will vary in style and organization. All reports should have these basic elements however, when providing accurate portrayals of the properties covered, and ultimately, their market values.