What we do...
We appraise numerous types of commercial properties, but what does such
Commercial real estate appraisal encompasses a broad range of elements,
some of which, or combinations of which, can create unique conditions and
complex circumstances for a particular property.
The following paragraphs include some of the elements that may be considered,
depending on the assignment.
Site conditions affect the usefulness of real
property. For example, slope, configuration and access to a site to be
developed can affect its development potential. Wetlands generally
require buffer setbacks and reduce the function of sites.
Zoning controls the legal use of land and improvements. Existing
improvements or uses may be permitted, legal nonconforming or not
permitted, depending on the local code. (Legal nonconforming uses are
uses permitted under a former zoning classification that has
since been reclassified; the former use is still legal and permitted by
the local jurisdiction even though it no longer conforms to the current
Comprehensive plans outline future intended uses by planning authorities
(of a city or county for example). These intended uses are often similar
to, or the
same as, current zoning classifications. Sometimes, however, the
comprehensive plan designation of a property is different from its
zoning, creating circumstances that require special attention in an
Title restrictions, recorded and unrecorded, may restrict the usefulness of
land or improvements. For example, buildings on adjoining land may
encroach onto the land of the subject property ("subject property"
the property that is to be appraised). Access easements
are another common example. The area occupied by these easements
encumbers the subject property for the benefit of surrounding sites and
generally cannot be used for any other purpose other than access.
Location of property is a primary influence on value. Street
exposure, ease of access, and proximity to employment
centers and commercial areas such as shopping, restaurant and
entertainment facilities can be major considerations.
Size of parcel, building, or number of units may affect the
price per unit paid in a transaction for a property comparable to the
subject property. The size of a property, according to the most
common unit measurement, may affect the affordability of the property to
a typical buyer. As an example, a small investor cannot purchase a
600,000 SF office building under ordinary
circumstances. The large purchase price limits the number of
potential buyers due to affordability and acts to reduce the price per
unit paid by the typical buyer. The affordability of property
typically relates to categories of sizes. An office building of
660,000 SF may be considered just as affordable as a 600,000 SF
structure (and in the same size category) to a group of typical buyers.
No adjustment would be warranted due to size in this example.
Quality/condition/age is a composite element that encompasses the level of property maintenance, the
effective age of structures, and the type of materials used to construct
the building. Architecture and attention to construction detail by the
original designers/contractors of the building play a part in the
overall quality of building and its ability to age slowly. Attractive
architecture and good design of structural, mechanical electrical and
landscape elements tend to establish and preserve quality.
Sometimes a building with a useful physical remaining life contributes a negative value to overall property worth. In
such a case, the building's economic life
has expired even though the structure itself may be still physically
useful. The capitalized value of the market rent of the land
and building combined may be less than the value of the land as though
vacant (less demolition costs). The highest and best use as
improved may be vacant land ready for redevelopment into a more
intensive (and more valuable) use if such development is permitted in the short-term under
the lease agreements. Sophisticated buyers look for these types of
Urbanization of neighborhoods over the decades, with increased
population densities per square mile, requires more intensive uses of
land. Urbanization generally lessens the economic life of structures.
(Increased use of structures also leads to physical depreciation, but
this may be offset by maintenance, renovation or
remodeling. Renovation or remodeling may also increase economic life if
it adds to building area.)
The terms of a lease control the cash flow of investment
property, affecting both the rental and expense flows experienced by the landlord.
Leases, however, are not the sole determinant of a property’s cash
flow and return to its owner. Quality of building, property management
and effective marketing of the property all contribute to variances in
return. For example, a building with an outdated HVAC (heating,
ventilation and air conditioning) system is more
expensive to operate. The amortized capital cost of a new HVAC
system may be less than normal HVAC operation expenses of
an outdated system. The landlord who decides to upgrade his HVAC
in this case may achieve a
greater net operating income.
Property management staff who handle a tenant family with attentive,
responsive service will encourage long-term occupancies by tenants,
reducing negative cash flow due to vacancies. Good leasing brokers who help maintain occupancies and lessen negative
cash flow due to vacancies are well worth their fees.