Commercial appraisals

Commercial appraisals weigh income heavily. For income-producing properties, the appraiser analyzes rents, operating expenses, vacancy, and capitalization rates to determine what the income stream is worth, an analysis that has no equivalent in a typical residential report.

The appraiser typically applies multiple approaches to value. The income capitalization approach, the sales comparison approach, and the cost approach are weighed and reconciled based on the property type and the purpose of the assignment.

Property-specific factors also drive the analysis. Retail values hinge on foot traffic and anchor tenants, office values on building class and parking, industrial values on clear heights and access, and multifamily on unit mix. Commercial appraisers know which factors matter for which asset.

Commercial appraisers use up to three methods to value a property. The income approach converts the property's net income into value using market capitalization rates. The sales comparison approach analyzes recent sales of similar properties. The cost approach estimates land value plus the depreciated cost to rebuild the improvements.

Each approach fits different situations. Income capitalization dominates for leased investment properties, sales comparison anchors owner-occupied and smaller properties, and the cost approach is most useful for new construction and specialized buildings with few comparables.

The appraiser reconciles the approaches into a final opinion of value and explains the weight given to each. That transparency is what makes a commercial appraisal defensible to lenders, partners, courts, and taxing authorities.