Understanding Commercial Property Valuation Methods
Learn about the three fundamental approaches to valuing commercial properties: Market Approach, Cost Approach, and Income Approach. Discover how each method leverages different data sources to determine the property's worth, with insights on when to apply each approach.
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Presentation Transcript
Commercial Property
Three Approaches to Value Market Approach (Sales) Cost Approach Income Approach
Market Approach Uses comparable sales to determine value Sources - MLS - Subscriptions - Sales Contracts - Fee Appraisals Fewer commercial sales available and many different commercial property types
Cost Approach Uses replacement cost, depreciation, and land values to determine value Sources: - Construction contracts - Marshall & Swift and other cost manuals - Local builders Calculate replacement cost of buildings (RCN), subtract depreciation to get depreciated cost (RCNLD), add land value to determine total property value
Income Approach Uses income & expense information to determine value Sources - Rent rolls - Profit & loss statements - Tax Returns - Subscriptions - Advertisements Calculate a net operating income (NOI) using market rents and typical expenses, capitalize the income to determine value
Income Approach The income approach is the most appropriate method in valuing commercial and industrial property if sufficient income data are available. Direct Sales comparison models can be equally effective in large jurisdictions with sufficient sales. When a sufficient supply of sales data and income data is not available, the cost approach should be applied. (IAAO Standard on Mass Appraisal of Real Property 4.6.4). Approach used most by property tax assistance division appraisers in property value study
What To Bring For Your Protest
Photographs of Property Each photo must be date stamped Drop off at office or email to - vcadprotest@gmail.com - The assigned appraiser s email Photos of damages need to be limited to 10-15 photos per property We will not have time to look at 100 s of photos
Receipts/Estimates for Repairs Receipts for any repairs must be AFTER January 1 Estimates include - Roof repairs - Foundation - Any damage to structures
Sales Price Documentation Listings Signed closing disclosure/statement MLS Sheets Full fee appraisals performed after April 1, 2022
Affidavits Any affidavit with information in support of value change May be needed for AG history verification
Newspaper Articles Broad, general information may not be considered
Architectural drawings/ blueprints May provide information on damages and needed repairs Must be current to current appraisal year
Engineering Reports May provide more information on damages and needed repairs than just photographs Must be reported from within the last year, and items in report can not be repaired by Jan 1
Property Surveys Useful for disputing property size and acreage
Deed Records Useful for disputing ownership
Commercial & Multifamily Income & expense information may be provided for rental properties - Tax Returns - Do not need the whole return, just pages that show rental income i. LLC Form 8825 ii. Individual Schedule E - Profit & Loss Statement - Typed document showing rental income & expenses - Rent Rolls
Anything you think may affect the value of your property If you are not sure, ask the appraiser assigned to your case what they need
