Unless you plan on purchasing a commercial property with cash, there are very few instances where your lender won’t require an appraisal of the property. This is a professional estimation of the market value of a property that is being considered for purchase.
As one might expect, the underwriting process for a commercial real estate transaction is quite a bit different than the process for a home purchase or refinance, as are the appraisals that are done for each property type. A residential appraisal strictly uses the sales comparison method to determine value. The appraiser will look at recent sales on the market and base their valuation solely on that after some adjustments for any property differences.
Your lender will want to be sure that the commercial space has productive use before they approve a loan, thus a commercial appraisal not only includes the sales comparison approach, but also an income approach. In an income approach, the appraiser will determine the income a property is likely to produce. This both helps to determine the value of the property and ensure that the property is capable of making enough income to service the debt.
Why Are Appraisals Necessary?
Besides the need to satisfy a lender’s underwriting on a purchase or refinance, there are other reasons why an appraisal is ordered on commercial property.
An appraisal can be ordered to estimate the amount of real estate taxes the property owner will pay. This is especially true if the values of the property and surrounding areas have recently fallen and they would like to protest or grieve their taxes. The owner can then take that appraisal to their local tax authority as proof that they are being over taxed.
Estate taxes are also a big issue and another reason why an appraisal might be needed.
If an owner is selling a property, they may order a private appraisal to determine the value of the property. This will give them a good idea of what price to list the property.
In many instances, commercial real estate can be owned by more than one person or entity. At various times, one or more of these owners may want to sell their interest in the property. In order to be fair to all parties, an appraisal would be ordered to determine the value of the property and each owner’s share.
Houlihan & O’Malley Commercial Services
Hiring a reputable Appraisal Company is just as important to you as it is to your lender. You want to make sure your investment is solid. The professional appraisers at Houlihan & O’Malley appraise most types of commercial properties including, but not limited to, apartment buildings, office buildings, land, warehouse/industrial and retail properties. We are also known throughout the tri-state area as an expert in affordable housing development.
Contact us to get started.