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retail buildingMost homeowners are familiar with appraisers as a result of the home buying process. A commercial real estate appraisal is based on the same principles. Commercial appraisers analyze and provide an opinion of market value of a wide variety of commercial properties. These include land, office buildings, industrial buildings, shopping centers, fitness facilities, hotels, and other commercial establishments.

Valuation of different types of commercial properties takes different levels of expertise. Gardiner Ray, LLC focuses on valuing of commercial land, small office buildings, as well as condominium office units.  Three types of analysis are usually applied: the sales comparison approach, the cost approach, and the income approach. 

The Sales Comparison Approach 

commercial propertyWhen using the sales comparison approach, appraisers pull the sales data of properties similar to the property that is being appraised. Though this is often the preferred approach to estimate value, comparable properties or data may not always be available, especially in areas of new development. 

The Cost Approach 

The cost approach is estimating value based on the cost to build a property and add it to the value of the land. This method is based on the association of cost with value. An appraiser will estimate the cost to construct the property (known as the replacement cost) and then apply deductions to account for any physical deterioration, functional issues, and external market factors. 

236 Pecan StreetThe Income Approach 

The income approach is based on the income potential of the property. An appraiser will estimate the net operating income of a property by reviewing the historical operating data of the property and that of comparable properties, as well as other market information. The most commonly used method  in conducting an income approach is the direct capitalization method: dividing the net operating income by a capitalization rate.