Commercial Appraisal Reports: How Much Do They Cost?
Every business that owns a commercial property will require an appraisal. Commercial real estate transactions are the most common. Commercial real estate appraisals are necessary when acquiring or selling a commercial building. As with home appraisals, commercial property appraisals offer unbiased, third-party insight into their value.
In contrast to residential properties such as single-family houses or condominiums, commercial appraisals estimate the value of stores, offices, hotels, apartment buildings, and the like. When you build, insure, tax, mortgage, or sell real estate, an appraisal is required.
Besides helping secure a loan or ensure that you have enough insurance, it may also help monitor the performance of your investment and its value.
Appraisal costs are associated unless your lender pays for them. A commercial appraisal will incur expenditures, which must be included in the organization’s budget.
This article will discuss the price of an appraisal for commercial property and what factors affect the final price.
Commercial Properties: How Are They Appraised?
The building’s value can be determined in several ways, each requiring extensive research of the property and the surrounding area. The appraiser assesses a building’s worth using one, two, or three methods.
A certified appraiser uses one of the following three methods to determine the value of the commercial property.
The Income Approach
Typically used for commercial or residential properties rented out to the public, this method emphasizes the property’s ability to generate steady revenue.
In this method, the appraiser estimates the property’s value by estimating its potential earnings and discounting them to the present.
Sales Comparison Approach
Sales comparisons are considered the simplest method of valuing a commercial property. When valuing commercial property, you look for other similar properties that have sold. This method is superior to other methods for properties that are often bought and sold.
Appraisers examine previous sales of comparable homes to determine the pricing and adjust accordingly. For example, an appraiser appraising a mobile home might examine houses with California mobile homes for sale or that have recently sold.
The Cost Approach
The cost method identifies the value of a commercial property by considering the cost of replacing it. It is often used for historic structures or other assets with exceptional qualities.
Appraisers use this method to value properties after estimating the costs of reconstructing the property and subtracting wear and tear expenses.
How much does an Appraisal Cost?
Each commercial property is unique, so it stands to reason that each appraisal should be tailored to the specifics of that property.
In some cases, appraisal companies have established prices, while others may provide a quotation outlining the cost and timeframe for completing the work.
An appraisal will typically cost about $4,000, but this can vary wildly based on the property. It is not uncommon for commercial appraisals to cost more than $10,000, or even more. You should budget at least $2,000 for your appraisal.
The fee may not be ideal for your budget, but it does provide you with some cushion. Finding an appraiser with a lower price isn’t the only thing to consider. Several factors may determine how much an appraisal costs, including the type of property to be appraised, the report requested, and the purpose of the appraisal.
Each appraisal will be influenced by various factors, such as the property’s intended use, the client’s unique requirements, the type of report, governmental rules and regulations, and the subject property’s size, service, and location.
Which Appraisal Report Do Clients Typically Request?
Commercial appraisal reports can come in various formats, each of which may differ in cost depending on the type of report desired.
Appraisal Report
Typically, an appraisal of a commercial property will be written as a narrative report. Therefore, the appraiser must summarize the various findings, assumptions, and data points used to determine the final value of the commercial property concisely.
It’s the most detailed report possible and will give the client and end-user a clear picture of the appraiser’s reasoning behind their findings.
Restricted Appraisal
Since Restricted Appraisals are written assuming their reader is already familiar with the topic, the market, and the appraisal process, they don’t have to go into as much detail as Appraisal Reports.
No matter what kind of appraisal report you’re looking at, the process remains the same. Due to the less scrutiny placed on its findings and conclusions, a Restricted Appraisal can be cheaper than a Narrative Appraisal Report.
Commercial Appraisal Costs: Factors to Consider
It is essential to realize that several factors affect the price of a commercial appraisal, and some of them are as follows:
Work Scope
A project’s cost is heavily influenced by the time spent on research, analysis, and reporting necessary to complete the project. Naturally, the evaluation cost will go up as the scope of the project increases.
Required time
A commercial appraisal takes a considerable amount of time to conduct. However, the charge will be more heavily affected by how much time the appraiser needs to complete the apraisal process and prepare the final report.
Location
Real estate appraisers might have to invest more time and money in buying data from a reputable third party when valuing property in a less populated or remote area.
Travel Expenses
Generally, any travel expenses should be considered part of the cost if the property is located in a remote region or state.
Several Appraisal Reports
Cost can be reduced by ordering several commercial appraisal reports because the effort and time put into gathering relevant data for each report may be shared.
The Bottom Line
Valuing commercial properties is hard, and there are many methods to choose from. In addition, several factors can affect the cost of an appraisal, such as the complexity of the property and the amount of data you want in the report.
When purchasing or selling a commercial property, choosing a licensed, qualified and experienced commercial appraiser familiar with the local market and the property in question is imperative.
It is also essential to consider that the valuation is just an estimate. The final sales price may differ from the estimated one.
Kristina White is the Marketing Director at Zero Down. Kristina loves to contribute informative articles in the real estate sector. She proactively keeps herself updated on the changing trends in the housing industry.
“Cost can be reduced by ordering several commercial appraisal reports because the effort and time put into gathering relevant data for each report may be shared.”
Ummm…I don’t think so. The relevant data should be developed independently among the appraisal firms selected for 2nd or 3rd opinions of value. Further, I can’t corelate how ordering multiple appraisals can be a cost-cutting measure if only by the dangerous suggestion of data sharing. And whose’s data is to be shared? Just the clients?
I may be wrong here, but I’m of the opinion that the story’s author has no actual commercial appraisal experience. Just scour websites and craft a story.
I have charged less when the same client has several properties for me to appraise. I’ve also charged less when I’m appraising two similar properties in the same neighborhood on the same day for different clients. So I’m assuming the same could be possible with commercial properties.
As far as sharing data with another appraisal firm, I wouldn’t mind as long as it’s reciprocal.
I believe that the famous Supreme court case in MA was not TAKEN due to the Courts decision, I also experienced a hospital expansion in Palm Springs appraisal was successfully countered by an owner and the hospital cancelled that expansion due to cost. Freeway routings are studied carefully, Electric transmission r/w are studied, yet. LAPW&L tried to take a 10-acre ownership from the proverbial little old lady and was turned down because other properties were available.
Should appraisers participate in the wider studies and or would he-she be tooo prejudice for their community. IF we participate in our communities would our communities become better, and appraisers considered more professional??
Thanks for writing that article. Some people don’t realize how much more complex commercial reports can be.
I have a lot of respect for commercial appraisers. I will stick with residential!
This article provides a comprehensive overview of commercial property appraisals, highlighting the significance and methods involved in determining a property’s value. Understanding the various appraisal approaches, from the Income Approach to the Cost Approach, offers valuable insights into the complexities of commercial real estate valuation. Moreover, the discussion on factors influencing appraisal costs underscores the importance of considering multiple variables when budgeting for this essential service.