Retail Property Appraisal

An appraisal of a retail building is a specialized, objective evaluation of its market value, executed by a trained appraiser using techniques like the Income Capitalization Approach, the Sales Comparison Approach, and the Cost Approach. This assessment is essential for lending purposes, investing decisions, tax considerations, and insurance, among other purposes. The appraiser looks at trends in the market, local and global economic factors, as well as conditions distinctive to the retail industry, such as the behavior of consumers to establish the property’s Value.

Appraisal approaches

Appraisers generally use two or three methods to value a retail property. These include:

 

Cost Approach: The appraiser estimates the reproduction or replacement cost new, then deducts the estimated depreciation, and finally adds the land value.

 

Sales Comparison Approach: The appraiser uses comparable retail buildings that have recently sold in the area to determine a price per unit (typically price per square foot) for the retail property being analyzed.

 

Income Capitalization Approach: The appraiser determines the property’s value based on the income-generating potential by looking at rental income. After deducting vacancy, collection loss, and expenses, the net operating income is divided by a market-derived capitalization rate for the retail property’s value by the Income Approach.

 

Factors considered

The appraiser analyzes both the physical real estate and the surrounding market in which it is located, including property features and attributes, locality and neighborhood statistics, current market developments and economic circumstances, and retail rents and income history.

 

Common uses

Appraisals are required for many intended uses, including:

 

Loans: Bankers, mortgage brokers, and hard money lenders  need appraisals to decide if the value exceeds the loan amount.

 

Investing: Allows purchasers and/or sellers to establish a reasonable price for a purchase negotiation.

 

Tax Purposes: Used for real estate tax dispute.

 

Other intended uses: May be used for negotiating lease rates, making a claim against insurance, corporation merging, and legal disputes.