The Essential Steps of Commercial Real Estate Appraisals

While commercial appraisals are crucial for determining property value, the process itself can be daunting, particularly for first timers.

The Appraisal Institute highlights several scenarios where commercial appraisals are necessary: facilitating the transfer of ownership of a property, aiding sellers in setting prices or buyers in making offers, and establishing a basis for property exchanges, reorganizations, or mergers. Additionally, appraisals are often needed for financing, credit, legal, tax, and investment purposes.

Preparing for an industrial real estate appraisal involves several key steps to ensure a comprehensive and accurate valuation. Whether for buying, selling, refinancing, or taxation purposes, an accurate appraisal is crucial. We’ve outlined the seven key steps to help commercial real estate property owners confidently navigate the process.

7 Steps of the Commercial Appraisal Process

  1. Define the purpose. The appraiser begins by identifying the client, intended use, type of value, and relevant property characteristics.
  2. Determine the scope of work. The second step involves outlining the required research and analyses for the assignment, including the type of property, the intended use of the appraisal, and the required level of detail.
  3. Collect the data. During this next step, data on the market area and comparable properties are gathered to understand the economic environment and other factors affecting property values.
  4. Conduct a property inspection: Perform a thorough inspection of the property to assess its condition, layout, and any unique features. Ensure that all areas of the property are accessible and address any safety concerns to allow for a complete inspection.
  5. Analyze the data. The data analysis considers factors such as scarcity, demand, utility, and purchasing power of comparable properties to estimate the subject property’s value.
  6. Form an opinion of value. The appraiser combines data analysis with their expertise to reach a final opinion of value.
  7. Prepare an appraisal report. Finally, a report is generated in one of the formats defined by The Uniform Standards of Professional Appraisal Practice, including Appraisal Reports and Restricted Appraisal Reports, chosen based on their suitability for the intended use and user.

The commercial real estate appraisal process is systematic and requires careful attention to detail at each step. Understanding the process is essential for anyone involved in commercial real estate transactions, ensuring transparency and confidence in the property’s assessed value.