3 Approaches to Estimating the Market Value of Your Commercial Property

When you are a commercial real estate owner who is considering the idea of selling your asset, your first though will be its value. How much is your commercial property worth on the current market? Well, there are various factors that influence the market value of a commercial building, so generally, a multivariate approach is ultimately relied on for an accurate assessment. But calculating a commercial property’s total worth doesn’t always need to be accomplished by applying more than one methodology; often times, one method works well over all others. The three common methods used to evaluate the market value of commercial real estate include the replacement cost method, the income method, and the market value method.

Continue reading to learn how each method works, and what you can do to increase your building’s value before listing it on the market.

Space Planning and Tenant Improvements 317-253-0531
Space Planning and Tenant Improvements 317-253-0531

How Commercial Real Estate Defines Value

The commercial real estate market does not shy away from directness when it defines value. Basically, value is characterized as being the most realistic and probable price that a commercial property could realistically gain in an open, active, and competitive real estate market, when the business deal is handled reasonably, intelligently, and with integrity, by both the purchaser and seller.

3 Common Methods of Estimating Value of a Commercial Building

► The Replacement Cost Method

The replacement cost method operates under the suggestion that an advised buyer should pay the same, or less than, the cost of a hypothetical replacement property that retains equal utility. Under this estimation principle, a buyer would create the data of an equivalent property that is utilized optimally for the purpose of financial gain. Certain adjustments can be made to the replacement cost formula to further exact the sum, such as depreciation, economic obsolescence, tax credits, and more. This method is often used when there are no comparable commercial properties on the market, nearby.

► The Market Value Method

Also known as the comparable approach, estimating the real value of a commercial property using the market value method is one of the most direct and accurate ways it is done in the real estate world. This principle is applied by identifying similar listings in the commercial real estate market that are equivalent to the property under evaluation. A full analysis is done equating the similar sites to the one in question, and the data derived would be used to make a final determination of comparable value.

It is common to incorporate certain variables into the market value formula to make adjustments for comparable value, such as a property’s age, condition, future expected costs and gains, tax policies, land-to-building ratios, depreciation, and similar real life factors that impact the sale. Basically, the total price a commercial buyer is willing to pay for a property equivalent to the one being assessed is the real market value of that property.

► The Income Method

The income method is another common approach to assessing the market value of a commercial property. Using this method, a property would be valued by identifying its current value, and to what amount that current value will benefit the proprietor in the future in terms of income. Net operating income is considered future benefits in the commercial real estate market, and that factor is what ultimately determines the total value of a commercial property when using this method. Under this principle, an informed buyer should expect that the commercial property will generate its current operating income for the foreseeable future. This method of market value analysis is typically applied for properties that generate income, such as hotels.

Commercial Space Planning and Remodeling Can Increase Your Property’s Value

A commercial space planning contracting team knows how to plan and design your business from the ground up in a way that will promote ongoing future success and profitability. By combining all benefits of commercial space planning service, you ultimately achieve more successful and steadfast business growth.

Tenant Improvements for Existing Commercial Spaces

For spaces that are already built and designed, tenant improvement work can come in the form of build-outs or renovations. Most businesses looking to lease a new space will opt for prebuilt options. In this case, the existing design might not work for them, which is where TI work comes into play. Before a tenant takes over the lease on an existing space, renovations can be made to customize the property to meet the exact needs of the business.

Moving Business Locations in Indiana?

Trust Our Commercial Space Planning Contractors to Maximize Your Savings and Earnings

Contact BAF Corporation at 317-253-0531 for trusted commercial space planning and permitting in Indianapolis, Indiana and its surrounding locations. Our skilled and experienced commercial general contractors deliver a streamlined construction process that meets all defined engineering and design specifications, procurement, schedules, and budgets for your commercial office space or business. Call today to request free information or to schedule a consultation.

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