Buy Properties Below Market Value

Here in the United States, “fair market value” on any item is determined by what a buyer is willing to pay a seller for the item. Simply put, if I have a stick of gum, and I offer it to you for ten cents, and you want to purchase it for ten cents, then the fair market value of the stick of gum is ten cents.
While real estate also has a fair market value, it is a bit harder to determine because of all the factors which go into the valuation. A property, unlike the simple stick of gum in the above example, has multiple aspects for a seller and buyer to put different valuations on. Introduce a lender into the picture, and then you have a third option on valuation to deal with as well.
Determining commercial property market value is different than determining market value for a residential property. In a residential valuation you can simply look at other recent comparable sales in the area, of similar homes and lot sizes, and determine about what a property is worth at any given time. The issue you will find with commercial property is that they tend to be one-of-a-kind properties, and you may not be able to find many local comparable sales in recent times.
One major difference between residential and commercial properties is their location and their use. If you own a large lot inside of the city limits, with a huge warehouse store built on it, with a 10 year lease to a big box store, then you have a very valuable property. If you have the same lot size, with the same store on it, same lease, but it is located 30 miles from the only local town where most people in the area live, then you have a lesser valued property. Location, also known as market area, is more important in commercial real estate because businesses need to be near to their workers and to their customers as well.
Another consideration when looking at market value of a commercial property is the availability of similar properties on the market. By looking at as many properties as possible, you can start to get an idea of what different properties are selling for in your local area. This gives you some leverage to point out differences and better negotiate the price you are willing to pay. This will also give you some idea of how difficult it will be to find a tenant for your property.
If you are tying to determine the market value of a piece of commercial real estate, one of the factors you should always consider is how well other properties in the area are renting and what they are renting for. You will need the rental income to cover your investment funding as well as your day to day costs of owning the property. If you purchase a property at an agreed upon price, will the rents support the costs? What if your property sits vacant for a month or two? These are things you need to think about prior to purchase.
When trying to determine commercial property market value there are many factors which come into play. The biggest being the market area, local property costs, rental income potential, and the property condition itself. By determining what you are willing to pay for a property, and having a professional commercial real estate market analysis completed for you, you can avoid many of the mistakes new commercial property investors make.

Even though we are currently in a buyer’s market, many land owners are looking to sell it to potential buyers. Before an individual can sell it, they must know how much to value their own property in order to attract potential buyers. Most individuals appraise property before they sell it.
Valuing commercial property is very important for an investor. If an individual values it at a price that is too high, then it can prevent the sale from taking place. If a piece of a property is valued too low then the seller will lose out on a potential profit. The best way to evaluate commercial land is by an appraisal.
There are many ways of appraising and deciding commercial property market value for a piece of property. Many owners will usually pay for one or two appraisers and compare each individual’s evaluations. Most professionals appraise a piece of land by developing an opinion of the value of property. An appraisal of a land occurs because no two properties are identical and the value of all of them differs based on location. Because estimating a property’s value does not always utilize a market-based pricing mechanism, an expert appraisal of the real estate is needed.
Usually appraisals are performed by a licensed appraiser. Many times the appraiser bases his or her opinion on market assessment and the Highest and Best use of real property. An appraisal is most often reported on a standardized report form. If the appraisal is for a complex piece of property with many unusual characteristics, the appraiser will typically report their findings in a narrative report.
An appraiser will determine a cost approach, a sales comparison or salary-based approach when assessing your property. The cost approach suggests that the value of the property is equal to adding up the value of the land minus any needed improvements. This approach is usually used on newer structures and less on older structures. The sales comparison approach evaluates the price per unit area of land similar to other appraisal amounts of similar properties in the marketplace. This approach is the most objective of the three approaches and allows the appraiser very little wiggle room. The salary-based approach is used to value commercial and investment properties, because it evaluates an income stream.
Since these techniques vary greatly amongst each other, the technique used will depend on what type of asset you have. For example, appraisals of investment property such as skyscrapers may be subject to the income approach, whereas retail or office buildings may be subjected to the sales comparison approach. An apartment building may be more subjected to the sales comparison. Before you sell your property, make sure you appraise it with an expert.