Commercial Real Estate Appraisal Income Approach
The income approach is often place primary emphasis in assessing a commercial property used to generate income. Estimates of value through the income approach are very sensitive to changes in revenue, expenses and capitalization rate.
Proper execution of a cost analysis approach seems to be, and is technically difficult. Seems easy to properly prepare an analysis of income for the property. However, the analysis proper preparation requires three criteria: 1. an understanding of the value type, 2. accurate data, and 3. precise application of the income approach.
Commercial income property can be evaluated based on property leased for a fee. The fee simple property is appropriate for properties with leases in line with market rent and conditions. Value of buildings leased fee is more appropriate for the properties above or below market rents in the market. Valuing properties with rates lower than market rental based strictly on its real rental rates would diminish its value. Valuing using market rates for hire would overstate its market value.
Precise data is the basis for a reliable conclusion income. This includes information on rental rates, employment rates, new construction, absorption, operating expenses and capitalization rate. Rental rates are usually derived from comparables rent, leases and market data aggregated. The same is true for employment rates. New construction can be obtained from personal observations while doing fieldwork, research and market data aggregated.
Read the rest of this entry »
