There are many differences between residential and commercial real estate with perhaps the biggest being how you handle validation. Knowing the value of a property is an important aspect of purchasing or selling. Values in real estate are never exact but rather estimates of what a property is worth, which is the reason why valuing a commercial property is very different from valuing a residential property.
Value Penguin explains there are several methods you can use to come up with a good idea of what a commercial property is worth.
Income
Since the property will produce an income, you can figure that into the value. The income approach involves dividing the operating income by the average sales rate of similar property in the area. This gives you accurate insight into the current market’s effect on the value of the property.
Cost
You can create a value from looking at simple figures for the value of the land and then the expense of rebuilding the building. This would give you an idea of the new cost for the property. It may not completely represent the actual value.
Sales comparison
You can also use an approach that is similar to residential real estate where you compare the property to similar properties recently sold in the area. You may have some issues with this if it is not a type of property that is plentiful in the area.
Other options
Each of these approaches has pros and cons. You may be able to come up with a hybrid approach that allows you to better assess the overall value including what it is worth compared to other real estate and how the income potential factors into the value.
