Valuation Methods for Commercial Real Estate Appraisal

Appraising the value of a commercial real estate property is never an easy task. There are many things to consider, such as the current market price, rental rate, and how much the buyer is willing to pay. If this is your first time selling or leasing a property, there are many appraisal services in Toronto that can help you.

Here are commonly used valuation methods to give you an idea of what a property appraiser might use:

• Value per Unit – This method generally applies to apartment buildings rather than single-unit properties. The building’s worth is calculated based on the number of units, regardless of size.
• Cost per Square Foot – The value of a property is obtained by taking the price per square foot and multiplying it by the total square footage. The total square footage includes all usable areas, including stairwells and elevators.
• Cost Approach – The cost approach takes the costs of the current land value, construction materials, and replacement value into consideration. This appraisal method is usually applied when the property contains unique improvements and upgraded structures that are otherwise difficult to locate.
• Direct Comparison Approach – This market approach considers the sales value of similar properties. The sales comparison approach is useful when appraising residential properties in the same general area. However, this method can be difficult when there is a lack of data on comparable properties.
• Income Capitalization Approach – This method is based on the projected net income of the investment based on local market research. It relies heavily on the expectation of future benefits.

Your chosen valuation method should depend on the type of property you own. To have a clearer view of the appropriate approach for you, it is best to consult with trusted appraisal firms. Choose a property appraiser or company that is certified by the Appraisal Institute of Canada, has decades of experience and provides reliable and accurate valuations.