What is a Commercial Real Estate Appraisal?by Michael Cliggitt, MAI, MRICS on 08/03/13
A Commercial Real Estate Appraisal is a general term for an appraisal of property that is not residential (not a single family residence) and is performed by a State Certified General Real Estate Appraiser.
Commercial real estate includes a vast array of property types and is many times used to describe properties that are not necessarily commercial properties, but could be industrial properties, institutional properties, vacant land, agricultural properties, etc. So in essence, the terminology of commercial real estate appraisal loosely descibes an appraisal on a variety of property types but usually excludes typical single family residential homes.
The differentiation is primarily driven by licensing requirements required to perform appraisals. Generally speaking, there are two main categories of appraisal licensing State Certified Residential Real Estate Appraiser and State Certified General Real Estate Appraiser. (Note this references primary licensure/certification and does not account for other categories including registered trainee appraisers)
As the names suggest, the Certified Residential category allows the appraisal of residential properties usually including single family homes, and smaller multi-family properties like duplexes, triplexes, etc. as well as vacant residential lots and smaller vacant residential land. The Certified General category allows the appraisal of all properties types both residential and commercial. However, many times Certified General appraisers focus primarily on non-residential properties and specialize in the appraisal of commercial real estate.
Generally speaking, an appraisal is defined as the act or process of developing an opinion of value (definition from the Appraisal of Real Estate published by the Appraisal Institute). There are multiple valuation methods and techniques that can be utilized in developing an opinion of value including the Cost Approach, Sales Comparison Approach, and Income Approach.
The Cost Approach analyzes the value of the land plus the depreciated cost of the improvements to derive a value. The Sales Comparison Approach may be the most familiar to many people, this is the process of finding similar or comparable properties that have sold and comparing them to the property being appraised in order to derive a value. The Income Approach is an analysis of the income generating potential or current income generated by a property and deriving a value based from an analysis of the income/cash flow potential of a property. The above are quick descriptions and not intended to be complete discussions of the typical approaches to real estate appraisal/valuation. However, these three appraisal/valuation methods may be utilized individually or together when appraising a commercial property. Each property and appraisal assignment is different and working with an experienced commercial real estate appraiser will help insure the appraisal is performed appropriately and the value derived is accurate.
If you have additional questions about commercial real estate appraisals or if you are in need of an appraisal, please feel free to contact:
Mike Cliggitt, MAI, MRICS
Cliggitt Valuation, Inc.
Real Estate Analysts, Advisors, & Appraisers
Based in Central Florida (Lakeland, FL)
Please note that none of the information or opinions expressed herein are meant to convey nor should they be construed as real estate appraisal practice, brokerage practice, legal, tax, or financial advice.