Commercial Real Estate Appraisal

Why Two Commercial Appraisals Can Have Different Values A common question commercial property owners ask is: “Why did two appraisers give different values for the same property?” This is not an error. Commercial real estate valuation is a professional opinion of value based on market data, risk, and property-specific factors—not a fixed formula or automated estimate. Commercial appraisal involves judgment. Two qualified appraisers may analyze the same property and apply different, reasonable assumptions. What matters is whether the conclusions are credible, well-supported, and defensible. Differences often result from assumptions about income and expenses, such as market rent versus in-place rent, vacancy, operating costs, reserves, and lease rollover risk. Risk perception also varies, including tenant credit, lease stability, market volatility, and property condition. Higher perceived risk typically results in higher capitalization or discount rates, reducing value. Appraisers may al...

Retrospective - Prospective -"As Is" Real estate appraisals that deal with different time frames go by different names. Retrospective value appraisals deal with appraisals as of a previous time such as when someone passes away.  Appraisers must report value as of the " date-of-death " of the decedent.  The comparable sales and rents in the appraisal must be on or before the date-of-death. Prospective value appraisals deal with proposed properties  such as an office building not yet built.  A lender needs to know the " value-upon-completion " which is a future date.  For multi-tenant properties, the value via the Income Approach " as stabilzed " requires an additional future date due to the time needed for lease-up. "As Is" Value   All appraisals must report an "As Is" value.  When a property suffers from deferred maintenance , the estimated " cost-to-cure " must be subracted from the value via the sales compariso...

How to calculate the effect of  above-&- below market rents on real estate value Contract rent that is above-or-below market rent affects the value of the leased-fee-interest in commercial real estate.  The following discussion tells you how to calculate the affect. Assume a 10,000 SF Building with 15 months remaining on the lease. Step 1 Convert contract rent PSF to a net equivalent rent.  For example, if the contract rent is $24.00 PSF on a full service basis, subtract the operating cost PSF to arrive at an equivalent NNN (triple net) contract rent.  If the operating expenses are $8.00 PSF, the equivalent NNN or net rent would be $16 PSF. Step 2 If the market rent is $18 PSF, NNN the difference is $2.00 PSF.  Based on the sssumed 10,000 SF building, the difference is $20,000 per year or $1,667 per month, multiplied by 15 months = a loss of $25,000. The Income Summary page should first show the value of the property based on market rent. Then, on the last r...

  Income Property Owners, How to Establish a Rental Rate Commercial Property Let's say your property is worth $1,000,000 and is a 10,000 SF building on a site without excess land. Step 1, Apply an 8.0% return to the value if your hypothetical prospective tenant is creditworthy. The resulting figure of $80,000 is the indicated annual NET Rent of $8.00 PSF. Income Summary wiil be:  $80,000 Projected Gross Income = $6,667 per Mo Rent Less 10% vacancy & collection Loss = $72,000 Effective Gross Income (EGI) Less: 2% Reserves for Replacement = $70,560 Projected Net Income (NOI)      Next Step Divide $70,560 / $1,000,000 = 7.06%, Round to 7%, this is your "Cap Rate" This analysis assumes that ALL operating Expenses are "passed-thru" to the tenant including a management fee . Cross Check , PSF Basis $7.06 / $100 PSF of Bldg Value = a 7% Net Return on Value or "Cap Rate". Market support , establish your own "ratio" by comparing asking rents to v...

  Insurance Appraisal, Condo Master Policy CFAC in Orlando Florida has mastered the science of producing Insurance Appraisals for Condominium Master Insurance Policy Appraisals. Daniel Peele, RZ 887 is a State Certified General Real Estate Appraiser with 35 years of experience in the appraisal business. The primary data source for the industry is from CoreLogic and is called "Property Express", a web-based app that subscibers purchase. CoreLogic assigns "Codes" to different types of property such as "Code 1335" which is for residential condos without any interior finish included in the cost estimate.   The reason for this exclusion is the fact that the interior of each unit is protected by a separate unit-owners policy.   A law was passed some years ago that requires the "Condo Association" to have an appraisal on file that in no more than (3) years old which documents the  "Replacement Cost New" based on one of three approved cost-est...

  Jet Realty in Orlando, FL offers new "Referral Service" Owners of Commercial Real Estate in central Florida now have a one-stop source of Service Providers for many things related to owning commercial real estate.   Daniel Peele is the Broker/Owner of Jet Realty and the founder of Central Florida Appraisal Consultants  (CFAC). Over his (40) years of experience, Mr. Peele has come to know many of the "players" in both the appraisal and brokerage sides of the commercial real estate market. The "players" include banks, mortgage brokers, private lenders, appraisers and various trades including electrical, paint, plumbing & roofing.  This valuable first hand knowledge is now available to property owners at-no-charge simply by contacting Mr. Peele by email at Dan@DanPeele.com Jet Realty   https://jetrealty99.com/                  CFAC   https://www.cfappraisal.com/