A current commercial real estate appraisal is crucial to assessing the sales price when purchasing commercial property. A gap in the appraised value vs. the sales price may send up a red flag.
When purchasing commercial real estate, it is important to hire an experienced local appraiser. An experienced appraiser will conduct a market analysis on the property to establish an appraised value. The appraised value gives an accurate value based on the current market and property condition, which will help you make buying and selling decisions for the property.
What Is the Market Value?
Market value, from a lender’s perspective, requires statistical probability concerning the value of a property to the public versus an individual buyer. In other words, if 100 buyers considered purchasing the property, the market value is the most probable price the majority of buyers would be willing to pay.
When the market is in a state of rapid change, larger gaps tend to appear between appraised and sale values. When market values rise, appraisals tend to underestimate property worth. Conversely, in falling markets, appraisals may overestimate values.
It is important to have as up-to-date an appraisal as possible so that the constantly fluctuating market prices are accurately portrayed. A sizable gap between a property’s appraised value and the market value can have a negative effect on your loan application.
If the property’s market value is on the rise, the current appraisal value may represent an underestimate of its value, thus reducing the amount of money a lender is willing to offer.
The market value of a property is subjective but factors heavily into an appraised value. A local appraiser will be familiar with the true value of properties in the area and the current market and reflect that in the final appraisal.
How to Find the Commercial Appraisal Price vs. the Sales Asking Price
The sales price is simply the price that a seller is asking for a property. To find the appraised value, an appraiser will do a comparative market analysis of the commercial property. Contributing factors to the final appraised value include:
- The neighborhood where the commercial property is located
- Total square footage area of the property
- Property’s age, actual and effective
- Condition of the commercial property’s foundation, wiring, plumbing, HVAC, roof, etc.
- Whether or not the building is in compliance with all commercial property codes
- The market value of surrounding similar properties
If the appraised value presented is higher than the sales asking price, then you may have immediate equity in the property. However, if the appraisal is lower than the asking price, make sure to investigate thoroughly and ensure that any marks against the property are easily remedied. Sheetrock, flooring, and paint can be easily replaced, but structural issues like termites, cracked foundations, or faulty wiring require costly and long-term repairs.
If your appraisal comes in lower than the asking sales price, consider having a second appraisal done for accuracy and to ensure that the most current market value is reflected. If the problems causing the low appraisal are easily fixed, work with the seller to renegotiate the contract to include repairs, or to lower the price to cover your expenses.
Hire an experienced local appraiser to make sure you are not overpaying for your commercial property.
Contact Ferstl Valuation Services to request a commercial real estate appraisal today at 501-313-0641 for our Little Rock office or 479-595-0245 for our Fayetteville office.