How to Pay an Appraised Value for Commercial Property

When purchasing a commercial property, you want to pay the right price. The best way to ensure you're getting a good deal is to get an appraisal. A commercial appraisal takes several different approaches to assess the value. The appraised value you will pay depends on your use for the property.

Market Value

Market value describes the appraised value of the property based on the going rate for similar area properties on the market. The appraiser will inspect the property and assess the condition. He will then look at finalized sales for comparable properties. By comparing the condition and values of these properties, he will determine the market value. This is the price you will pay if you plan on occupying the property as is. For example, an office or a retail location that is ready for use.

Income Value

An appraised value that uses the income capitalization approach assigns a value to the property based on its potential to generate revenue. The appraiser will estimate the potential gross rental income the property will generate. He will also take into account current market rental rates, operating expenses and miscellaneous fees associated with the property, such as parking and vending. This is the price point for purchasing with the intention to lease the property.

Cost Approach

When an appraiser uses the cost approach, he calculates the value based on the cost to rebuild the property. He will figure the price per square foot based on contractor estimates for similar properties. He will multiply this price by the square footage and work in the value of the land. Purchasing a property based on a cost-approach appraisal is best if you intend to occupy and improve the building.

As Completed

Sometimes you can purchase a property that hasn't even been built yet. If you're not building it with your own money, you will buy it based on the as-completed value. The appraiser will review the plans, specs and budget for the construction project to determine the final value as compared with similar area properties. If you're purchasing a property based on the as-completed value, the contract will be conditioned on proper completion and won't be finalized until construction is finished.