BreakThru Realty

Guide

How Commercial Property Is Valued

A commercial building is valued three ways and the answer is where they agree: on its income, against comparable sales, and on what it would cost to replace. Which approach leads depends on the building. A leased investment property is valued on income; an owner-user building or a vacant one on comparable sales; a new or special-purpose building on cost. Knowing which applies to yours is the first step to pricing it.

Ask a Commercial Specialist · (786) 914-1017

BreakThru Realty · Founder and Broker of Record: Tyson E. Sam, Florida License 3565210

The Income Approach

Net operating income, which is the rent the leases actually produce less vacancy and the operating expenses the owner pays (taxes, insurance, maintenance, management) before debt service, divided by the capitalization rate buyers require for that type, location and tenant quality. A lower cap rate means a higher price for the same income. The figure that survives a buyer's check of the leases and the bank statements is the one that counts, and the property tax and insurance a new owner will pay replace the seller's.

The Sales Comparison Approach

What comparable buildings sold for, per square foot of building or per unit, adjusted for location, condition, age and the terms of each sale. It leads for owner-user buildings, vacant buildings, small properties and land, where income is not what the buyer is paying for. The recently-sold pages show the closed figures by county and type.

The Cost Approach

The land value plus what it would cost to build the improvements new, less depreciation. It sets a ceiling (no one pays more for an old building than for a new one) and leads for new, special-purpose or insurance valuations, but rarely for a sale of an existing building.

What Moves the Number

Lease length and tenant credit; occupancy and the cost to fill vacancy; deferred maintenance and the capital items coming due; parking and access; zoning and what else could be built; and the market's cap rate at the moment of sale, which moves with interest rates. A broker's opinion of value works all three approaches against today's market; an appraisal does the same for a lender. Neither is a number anyone can read off the internet, and we publish none for a specific property.

Ask a Commercial Specialist

Call or text (786) 914-1017 or email sales@breakthrurealty.com. A licensed BreakThru Realty agent follows up within one business day.

Frequently Asked Questions

What is a cap rate?
Net operating income divided by price: the yield a property produces if bought for cash. Buyers use it to compare properties and to turn verified income into a price. The market-data pages show the cap rates listings report.
Why is the appraisal different from the broker's opinion?
They use the same approaches for different purposes: an appraisal is a formal, independent valuation a lender relies on; a broker's opinion of value is a pricing recommendation for the market today. They should land close together when both are done well.
How do I find out what my commercial property is worth?
Ask for a confidential broker pricing review: a licensed agent works the three approaches from your rent roll and statements, the closed sales and the competing listings, and shows you the figures in writing.

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