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What is a Commercial Real Estate Appraisal

What is a Commercial Real Estate Appraisal

A commercial real estate appraisal is a report prepared by a professional appraiser that estimates the value of a piece of commercial real estate. Banks typically use this report, investors, and other interested parties to determine a property’s worth and make informed decisions about buying, selling, or financing it. The appraisal considers various factors, such as the property’s location, its size, its condition, and the state of the local real estate market. 

What Does a Commercial Real Estate Appraisal Provide?

A commercial real estate appraisal estimates a property’s value based on various factors.

This can be useful for several reasons, such as:

  • Helping potential buyers or investors determine how much they should pay for a property
  • Helping property owners choose how much they should ask for when selling a property
  • Providing banks and other lenders with information they need to make informed decisions about providing financing for a property
  • Providing a basis for property tax assessments
  • Providing a basis for property insurance rates

In addition to providing an estimated value, a commercial real estate appraisal can also provide valuable information about the property itself, including its size, age, condition, and any improvements or upgrades that have been made. This information can be helpful for anyone in the commercial real estate industry.

Who Completes the Appraisal?

A professional appraiser typically completes a commercial real estate appraisal

Appraisers are trained and licensed to estimate real estate value based on various factors, such as location, condition, and market conditions. 

Most states have licensing requirements for appraisers, and many require appraisers to have a certain amount of experience and education in the field before becoming licensed.

Handling the Appraisal Fees

The cost of a commercial real estate appraisal is typically paid for by the party requesting the estimate, such as a potential buyer or a lender. Sometimes, the assessment cost may be built into the property’s purchase price or included in the financing costs. Anyone involved in a commercial real estate transaction to understand who is responsible for paying the appraisal fees and factor these costs into their budget.

Tricky Situations That Call For Appraisals

A commercial real estate appraisal may be critical in a few tricky situations. For example:

  • When a property is sold without an agent: In this case, there may be no one to estimate the property’s value. An appraisal can provide an unbiased assessment of the property’s worth.
  • When the property has unique features or is in an unusual location: In these cases, it may be difficult to determine its value based on comparable sales in the area. However, an appraisal can consider the property’s unique characteristics to provide a more accurate estimate of its value.
  • When there is a significant gap between the seller’s asking price and the potential buyer’s offer: In this situation, an appraisal can provide independent confirmation of the property’s value and help the parties agree on a fair price.
  • When the property is sold as part of a divorce settlement: Ensure that all assets, including real estate, are divided fairly between the parties. An appraisal can provide an objective estimate of the property’s value, which can be used to help determine an equitable division of assets.
  • When the property is being used as collateral for a loan: In this case, the lender will want to have an accurate estimate of the property’s value to determine how much they are willing to lend and to ensure that the loan is adequately secured. Again, an appraisal can provide this information.

Other Considerations to Make For Appraisals

In addition to the situations discussed above, there are a few other considerations to keep in mind when it comes to commercial real estate appraisals:

  • Timing: Schedule the appraisal at the right time. For example, if the property is being sold, the assessment should be done before the sale is finalized to ensure that the sale price is based on an accurate estimate of the property’s value.
  • Type of appraisal: There are different appraisals; choose the right one for your needs. For example, a “desktop appraisal” is a quick and inexpensive option that involves the appraiser reviewing available information about the property without actually visiting it. On the other hand, a “full appraisal” is a more specific option that involves the appraiser visiting the property and conducting a detailed inspection.
  • Appraiser’s qualifications: It is essential to choose a qualified and experienced appraiser to complete the appraisal. Look for a licensed appraiser with experience appraising commercial real estate in your area.
  • Comparison properties: The appraiser will need to review comparable properties in the area to help determine the appraised value. Ensure the appraiser has access to accurate and up-to-date information about these properties.
  • Scope of work: Clearly define the scope of work for the appraisal, including the specific property being appraised, the purpose of the appraisal, and any special considerations or requirements. This will help ensure that the appraiser provides the information you need.

You Still Need an Inspection

Note that a commercial real estate appraisal is different from a property inspection. While an assessment provides an estimated property value, a review is a detailed examination of the property’s condition. Therefore, an assessment can identify any potential issues or problems with the property, such as structural damage or mechanical issues, that may not be apparent from a cursory review.

It is a good idea to inspect a property before making an offer to purchase it or accepting a potential buyer’s request. An inspection can provide valuable information to help you decide about the property. In some cases, the review results may even be used to renegotiate the purchase price or to request repairs or other concessions from the seller.

In summary, a commercial real estate appraisal is a tool for determining the value of a property, but it should be considered a substitute for a thorough inspection. An assessment and a review are steps to take when buying or selling commercial real estate.

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