Many factors come into play when trying to assess the value of a commercial property. You can arrive at an accurate value for a vacant commercial property by making a determination of its fair market value based on current local information before you hire a professional appraiser. Past performance and future expectations of the property play a large role in factoring a fair market value figure. With a little research prior to the transaction you can save money by negotiating from an informed position.
Contact business owners in the area surrounding the vacant commercial property to find out what they are currently paying per month for their location and how many square feet of space they have.
Divide the rental figures by the total number of square feet in each business to get the monthly rent per square foot.
Add together all the dollar amounts and divide them by the total number of businesses contacted to get an average rent per square foot figure.
Multiply the neighbourhood's average rent per square foot figure by the total number of square feet in the vacant commercial property.
Multiply the estimated rent for the vacant property by twelve to determine the total annual income of the space.
Research similar properties that have sold or are for sale in the area by contacting real estate agents to determine a total sale price and annual rent income.
Quantify a ratio for the sold and for sale properties by dividing their total sale price by their projected annual rent income. A property with a £390,000.00 price and annual rent incomes around £65,000.00 would have a ratio of 6.
Add the price versus income ratio numbers of all the contacted properties and divide by the total number of properties to get an average ratio number.
Multiply the average price to rental income ratio by the estimated rental income from the vacant commercial property to reach a fair market price that is current for the local area.
A professional appraiser should be called in before completing a purchase of commercial property.
Tips and warnings
- A professional appraiser should be called in before completing a purchase of commercial property.