Low Property Values Not Appraisers’ Fault
Orlando commercial real estate appraisers have a challenging job. We have to go through commercial properties and give our honest opinions of what the property is worth in today’s market. Unfortunately, given the ongoing challenges in many areas of commercial real estate, a lot of owners end up disappointed with their real estate appraisal. When you order a commercial real estate appraisal, the appraiser you engage uses a combination of these methods to determine the value: cost approach, sales comparison approach, and income capitalization approach. Since many commercial buildings sell for below their replacement cost, your appraiser will probably discount his or her findings from the cost approach. This leaves them weighing the other two options.
Values and the Sales Comparison Approach
When an appraiser uses the sales comparison approach, he looks at other relatively recent sales in the market and adjusts them to find the value of your property. For instance, if you have a 10,000-square-foot, single-tenant, Class B office building in Kissimmee, the appraiser might look at nearby sales of 8,000- to 15,000-square foot buildings and adjust them based on the price per square foot. Unfortunately, if the recent sales in the area are at a low price, the appraiser will have to apply this pricing metric to your building. After all, it is their role to provide not only an opinion of the value of the property, but one that they can support based on market realities.
Values and the Income Capitalization Approach
In the income capitalization approach, the appraiser will add up your collected rent, common area maintenance (CAM) charges and other income, subtract a vacancy factor, and subtract all of your operating expenses to find your building’s net operating income (NOI). He will then divide that NOI by a “cap” rate, which is a percentage rate of return that he thinks investors will want to earn for buying your building. For example, if your retail center has a $225,000 NOI and a 9% cap rate, it would get appraised at $2,500,000.
If the appraiser’s income capitalization approach price comes in low, it could be because other cap rates in your area are high. As with the sales comparison approach, they need to take the cap rates of other sales in your market into account when choosing your cap rate.
Commercial Investment Appraisers wants to give you a satisfactory report when we analyze your property. After all, we want your repeat business and positive feedback. If we cannot “hit” your value, though, it’s because our Orlando commercial real estate appraisal has to be fair and accurate.
For more information, or to schedule an appraisal, contact us at 407-929-8080 or info@commercial-appraisers.com.
