Entrepreneurs are always looking to invest in or take out a lease on suitable commercial properties. These buildings could be in the form of office apartments, industrial complexes, or multiplex shopping centers. They then use the properties to expand their business operations. On finding the right ones, they enter into price negotiations with the properties’ owners. The amount they end up paying to the seller depends on the appraisal value of the properties. However, accurately assessing this value is often difficult and depends on many external factors.
Mack Prioleau is a commercial real estate expert from Dallas, Texas, with several years of valuable experience under his belt. He is an Economics graduate from Vanderbilt University and specializes in the development of industrial sectors. Currently, he holds the post of Associate in a prominent commercial property development company. He is even a globe-trotter visiting more than 19 different countries. His interests are hiking, surfing, and spending quality time with his family.
He says entrepreneurs need to understand that the commercial real estate market is volatile. Prices of prime office apartments, industrial land, and even shopping centers constantly fluctuate. They have got to be aware of the external factors influencing this price change. These determinants are as follows:
- Its location and accessibility to other prominent commercial hubs within the city,
- The prevailing interest rate on credit funds available to them for purchasing or leasing commercial properties,
- The general demographics, education, and average income level of the people residing in the vicinity of the property,
- The current physical condition of the property and whether it needs extensive renovation,
- Government policies such as granting subsidies to entrepreneurs or declaring certain areas to be exclusive economic zones,
- The underlying owner’s motivation to dispose of or generate an income from the property, and
- The assessable value of similar commercial buildings in the vicinity of the property influencing its price.
Valuation methods real estate appraiser uses
Entrepreneurs cannot rely only on their business acumen to determine a commercial property’s appraisal value. They need to hire a professional real estate appraiser having the necessary experience to help them. This specialist will accurately assess the building valuation by using any of one of the following common methods:
- Cost valuation approach where they assess the cost of the building property’s structure from the beginning,
- Sales comparison or market approach where the experts analyze the sales data of similar commercial properties in the vicinity,
- The income capitalization approach considers the probable income an investor is likely to earn from the property, and
- The gross rent multiplier approach determines the property’s potential valuation by dividing its fair market price by its gross income.
Mack Prioleau sums up by saying all owners set the appraisal values of their commercial properties differently. In doing so, they take into account several external factors likely to influence the buildings’ sale prices. These are accessibility, prices of other similar properties, prevailing economic conditions, and government policies. Entrepreneurs need to use their instincts and take expert help to determine the appraisal values are accurate. Only then can they expect to secure the best property deals.