Here are 3 simple tips for getting your commercial property valuation right.
Here at MANSARD, we follow three simple rules that, is like a three T approach. What I mean by that is we have three items that we look for when we’re selecting and filtering sales comparisons for commercial property valuation.
Getting your sales comp time frame right makes for a better commercial property valuation.
The time that the property has sold from your comp list is very, very important. The reason for that is if you go too far back in the past, the comparable will not be reliable when you’re putting your commercial property valuation together. We tend to go no further than 24 months back. You may need to look to a shorter period of time to come up with the appropriate period to pull your comp from. We’re generally comfortable going anywhere from 12 to 24 months, most often we’ll be between 12 and 18 months on a look back for the timing of the sales comparison for the commercial property valuation.
Comparing the same types of properties to one another to get your commercial property valuation right.
Commercial properties come in a lot of different types; you have hotels, office, multi-family, retail and industrial. Then, you get into subtypes like medical office, distribution centers, etc. Making sure that you’re comparing the same types of properties to one another is essential. When you’re doing a commercial property valuation, you want to make sure that you’re picking sales comparisons that are of a similar type. That means that you may have to go beyond the immediate vicinity to find that type of property. Once you find that type, size, quality, condition and tenant configuration, it will allow you to come up with a shorter list of sales comparisons that are more reliable for your commercial property valuation.
# 3 Trade Area
It’s crucial to make sure when you’re pulling your sales comparisons, that you’re staying within a trade area that is relevant to the tenants in the market.
Trade area is the immediate area from which the property tends to attract the most amount of tenant activity. For example, if you were to look at a market center and you see an industrial property, sitting at a major interchange, as you go out from that major interchange 5, 10, 15 miles, you’ll start to see tenant interest transition based on the socioeconomic concentration of activity. It’s crucial to make sure when you’re pulling your sales comparisons, that you’re staying within a trade area that is relevant to the tenants in the market. Ultimately, they’re driving the performance of the income for the property that is developing the valuation. That’s an important finding to your sales comparison model.
Comparing apples to apples.
The first commercial property valuation that pulls from timing is important. Second, is type, be sure that you’re comparing apples to apples, the most similar properties possible. The third is the trade area from which you’re pulling the sales comparisons for that commercial property valuation, to be sure that you’re getting reliable sales comparisons.
Be sure that you’re getting reliable sales comparisons.
We see mistakes made in this all the time. There is some subjectivity to how these sales comparisons are picked. Make sure that when you’re doing this, you’re careful about which ones you select. Additionally, if you see an appraisal, take a look at sales comparisons they use, because we have seen some appraisal sales comparisons that aren’t reliable.
The Three T Approach will help you to quickly get to sales comparisons that will get you to a commercial property valuation.
Follow these three tips, using the Three T Approach. It will help you to quickly get to sales comparisons that will get you to a commercial property valuation, that’s within a pretty tight range of value. That’s going to give you a lot more confidence when you’re preparing your decision, your investment decision. You deserve to make this a smart decision with your real estate and knowing what’s going on in the market is very important.
Ready to get started?
Schedule a free consultation with our team of experts to learn more. We’ll discuss real-time commercial real estate market opportunities and help you determine the best investment strategy for your portfolio.
Frequently Asked Questions about Top Commercial Real Estate Companies
I am a Certified Commercial Investment Member (CCIM). The certification is designated for those recognized as experts in the disciplines of commercial and investment real estate. With over 19 years of successful experience as a broker, I have brokered the sale of over 1,000 properties.
I utilize a variety of strategies to bring buyers to the deal. I have access to a strong and vast network of industry professionals. I have relationships with buyers and others who refer clients to me. Additionally, I use LoopNet, MLS and Costar and other online resources.
We are commercial property agents and do not provide legal advice. We do, however, work with skilled and experienced real estate attorneys and seek their counsel as necessary.
Commercial property brokers need information from their clients. For example, a commercial broker will ask their clients to provide important details about the history of the property and other facts crucial to its sale. Open and responsive communication makes selling a commercial property much easier.
The length of time it takes to sell a property is dependent upon many factors, like the amount of due diligence required to get the property ready to sell. A sale typically averages 6-12 months in the bidding process.
A 1031 exchange is a swap of one investment property for another that allows capital gains taxes to be deferred.
Your broker will consider many factors such as the location of your property, the year it was built, the type of property, and the size of the property. Your broker should be taking a market approach, which means they are looking at recent sales of other properties that match many of the characteristics of your commercial property to determine the sale price.
Properties are broken down into three classifications. Each property classification reflects a different risk and return because properties are graded according to a combination of geographical and physical characteristics. These letter grades are assigned to properties after considering factors such as age of the property, location of the property, tenant income levels, growth prospects, appreciation, amenities, and rental income. There is no precise formula that dictates which properties are placed into which class. Grade A space is the most expensive and presents the least amount of risk. Conversely, Grade C is the least expensive but has the most amount of risk. In most instances, it would be cost prohibitive to try and invest enough money into your property for the purpose of moving it up a grade.
There are important benefits to working with a commercial property broker. An experienced and astute broker will have strong relationships with other industry professionals to help locate buyers, will thoroughly understand market trends, and has tried and true marketing techniques and resources.
Agents get paid by the property owners via commission. An agent’s commission does not affect the purchase price.
Links to greater Boston real estate market trends:
- Schedule a consultation with a top commercial real estate broker
- Get an office market update for Greater Boston
- Find out the top 5 questions to ask your commercial real estate broker
- Sales trends to watch in the Boston commercial real estate market