Whether you are buying a piece of commercial real estate or you are the person who is liquidating this kind of property, it is best if you understand what goes into property valuation. Property valuation is done to determine the proper price point for a piece of real estate, and this process can look much different for a commercial property than what it does for a residential property. Here is a look at a few techniques used to valuate a commercial real estate property.
The potential long-term value of the property will be assessed
The long-term value of a property is a huge part of commercial real estate valuation. A lot of thought goes into this. A residential property pretty much retains its value as long as nothing drastic happens in the local economy. But a commercial property's long-term value can change due to a wide array of factors. For example, a building that is designed to serve a large retailer may not be so desirable for the long-term because the number of people shopping online is growing by the year. The future outlook of the usage value of a property is a major price-affecting factor.
The functional aspects of the property will be examined
Most commercial properties do have functional elements that will be examined during property valuation. There are multiple functional components to consider here, and they can differ drastically depending on the property. For example,
- The HVAC system will be a major component in a retail space
- The boiler system will be a huge factor for an industrial operation
- The loading dock and dock doors will be a major implement in a warehouse
During property valuation for commercial real estate, the examiner will look at the functional components to determine if they are working or need repairs or replacement.
The overall property condition will be determined
Property condition is always a huge factor during real estate valuation, whether it is for residential or commercial properties. However, in a commercial setting, property condition can drastically reduce the ability to sell the property in the future. Commercial buyers are far less likely to want to invest in a building that needs extensive repairs. They are making a major investment already and need a sustainable place to operate the business for the long-term. A property with a lot of issues, such as an ailing roof or bad windows, can look undesirable and be far less valuable.
Speak with a commercial real estate agent for more information.