The Commercial Appraisal Process Research Paper

                                             Research Paper

                           The Commercial Appraisal Process

                                                               By:

     There are three ways to appraise commercial real estate, the cost approach, the sales comparison approach and the income capitalization approach. All three methods have value when it comes to accurate appraisals but, each method depends on the situation and the type of real estate that is being appraised.

      The cost approach determines value by examining like comparisons. The cost approach separates the property into two segments land and building components. The first step of the cost approach is to determine the properties value without any buildings. The cost approach then adds the buildings value into the equation and devaluation is deducted from the building to configure cost. The principal method of the cost approach is to utilize of substitution. General public buildings are valued utilizing the cost approach because it's difficult to find like properties within a local market segment that have been sold recently enough to use the sales comparison approach. General public buildings generally do not earn income; so it's impossible to use the income approach to value the property. The cost approach follows these steps: estimate the value of the property without of building, estimate the cost to build the building and then add this value to the value of the vacant land. The next step is to create value for depreciation of the properties improvements. The final step is to subtract this from the total to determine the properties value. The appraiser must choose between two cost bases, reproduction cost and replacement cost to determine the properties market value.

     The Sales Comparison Approach is the method generally accepted to value residential real estate. This approach involves the selection of properties that are comparable within

the same market segment and have recently sold. These properties are used by the appraiser and they will deduct value from the subject property for deficiencies and increase value for advantages. This process involves making adjustments, researching the MLS and experience. The sales comparison approach is most accurate and reliable method to use when the appraiser see that adjustments are minimal on like properties. Sales that are most comparable to the subject property give the appraiser an indication of value based on a square foot basis. When you are dealing with income based properties, the sales comparison approach can be used to check the value determination from the income approach method. The sales comparison approach is generally utilized for owner-occupied commercial properties.