Valuing commercial property is very important for an investor. If an individual values it at a price that is too high, then it can prevent the sale from taking place. If a piece of a property is valued too low then the seller will lose out on a potential profit. The best way to evaluate commercial land is by an appraisal.
There are many ways of appraising and deciding commercial property market value for a piece of property. Many owners will usually pay for one or two appraisers and compare each individual's evaluations. Most professionals appraise a piece of land by developing an opinion of the value of property. An appraisal of a land occurs because no two properties are identical and the value of all of them differs based on location. Because estimating a property's value does not always utilize a market-based pricing mechanism, an expert appraisal of the real estate is needed.
Usually appraisals are performed by a licensed appraiser. Many times the appraiser bases his or her opinion on market assessment and the Highest and Best use of real property. An appraisal is most often reported on a standardized report form. If the appraisal is for a complex piece of property with many unusual characteristics, the appraiser will typically report their findings in a narrative report.
An appraiser will determine a cost approach, a sales comparison or salary-based approach when assessing your property. The cost approach suggests that the value of the property is equal to adding up the value of the land minus any needed improvements. This approach is usually used on newer structures and less on older structures. The sales comparison approach evaluates the price per unit area of land similar to other appraisal amounts of similar properties in the marketplace. This approach is the most objective of the three approaches and allows the appraiser very little wiggle room. The salary-based approach is used to value commercial and investment properties, because it evaluates an income stream.
Since these techniques vary greatly amongst each other, the technique used will depend on what type of asset you have. For example, appraisals of investment property such as skyscrapers may be subject to the income approach, whereas retail or office buildings may be subjected to the sales comparison approach. An apartment building may be more subjected to the sales comparison. Before you sell your property, make sure you appraise it with an expert.
Property investors who want a good return on their investment should always make sure that they buy property well below market value. When you purchase a property at a price below its true value, specifically at a residential property auction, you will be off to a good start as such a move is considered an excellent investment strategy. Why? Because you have already made money from day one. You have also created a cushion of equity that will protect you should the market stabilise or fall.
One of the best places where you can buy a property below market value is at auction - a place where investors can hit upon real bargains. Here are some of the reasons why auctions are such a hit with people wanting to find good deals:
* A property auction is a place where motivated sellers go when they want to quickly sell a property. Motivated by urgent needs, sellers turn to property auctions to divest themselves of their properties, so they can get on with their lives. Usually, the urgency is brought about by divorce or the need to move or relocate to another place. Most of the sellers here are prepared to accept a lower price than they could have achieved if they were prepared to sell through an estate agent.
* Auctions are also a good source of properties where sellers do not have the funds to give the property the renovation needed to allow the owners to sell at a higher price. This offers a lucrative opportunity for developers.
* Property auctions are awash with botched buy to let investments. It is not surprising to see that investors typically refrain from taking on designer apartments now that may find that the same properties will be sold down the line as repossessions at auction a couple or so years down the line.
Buying a property at auction may require considerable financing. One important aspect of property auctions is the need to have access to immediate funds. The chief explanation is that a 10% deposit will almost certainly be called for on the day of the auction, while the rest will typically be required within 28 days from when the hammer went down.
The implication for this is that a traditional buy to let mortgage is not always appropriate since completion times may render the investor unable to meet tight deadlines. If you don't have direct access to cash, your best option is bridging finance. This is a short term loan wherein the interest is above normal mortgage rates and is typically charged on a daily basis. Selecting a provider is crucial.
Property auctions hold real opportunities for investors who are on the lookout for properties that are below market value. When you find a property where the purchase price is lower than its true value, you may want to give it a face lift prior to re-selling or letting it. This is the course you may want to take if you want to develop your portfolio, earn money from it and ensure a secure financial future.
Both Andrew Stratton & Naresh Dogra are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
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