How to Calculate Commercial Property Value?

There are several methods on how to calculate commercial property value. The best approach is however to use the cost approach valuation formula. It uses a basic formula: Property Value = Replacement Cost – Depreciation + Land Value to get the answer. But there are more methods you can try.

How to Determine Commercial Property Value?

Here are the methods on how to calculate commercial real estate value:

Cost approach valuation: 

This approach uses the formula Property Value = Replacement Cost – Depreciation + Land Value

• The replacement cost can be estimated using the replacement method that estimates the cost of a building construction.

• Depreciation refers to the gradual decrease in the value of a property due to its construction deterioration

• And value of the land is estimated using the direct comparison method. You can use this method to estimate the current value of the land from the recent sale of comparable properties

Income approach

: 

The income approach is also used to get a property’s value. The formula is: Property Value = Net Operating Income / Capitalization Rate

• Net operating income is calculated as a property’s rental income minus its operating expenses. 

• The capitalization rate can be found using the formula Net Operating Income / Purchase Price of the commercial property

Other methods you can try are the:

• Comparative Market Analysis (CMA): This method involves analysing recent sales of similar properties in the same area. You can use the NoBroker app or website and do a CMA to determine the estimated market value of your property.

• Appraisal: An appraisal is a professional evaluation of a property's value conducted by a licensed appraiser. Appraisers consider property condition, size, location, and recent sales data. 

• Income Approach: This method is primarily used for commercial properties. It involves assessing the property's potential income. This can depend on rental income, operating expenses, and capitalization rates.

So this is how do you calculate the value of a commercial property. I hope these methods will help you find your property’s value.

Read More: