Calculating a Commercial Real Estate Valuation
How is a commercial real estate valuation calculated and what can you do to get it right? Knowledge is power when assessing the value of a piece of commercial real estate. There are multiple ways to assess the value of a commercial property, so let’s take a look at commercial real estate valuation and some tips you can use during the process.
Importance of Hiring a Certified Professional for your commercial real estate valuation
It’s important to hire a professional like WCRE for your commercial real estate valuation because their official credentials matter to other people. It’s the most important item on any selling a business checklist. Stakeholders and potential buyers will be much more satisfied with an assessment done by a certified professional than, say, you yourself. It holds more weight and is likely to be trusted more. Here are some things you can do to make the process easier and more accurate.
1. Tally Up Assets
The asset-based approach is done by weighing your assets against your liabilities. Assets are whatever
resources you use to make revenue, and liabilities are financial debts you owe to other parties. These can take
the form of long-term debt, as well as accounts payable. The difference between your assets and liabilities is
your equity, or the value of your property.
2. Count your Income
By assessing how much income your business is set to make, you can place a value on it that way. You can
also measure its worth in earnings per share. Remember to take into account any sales of companies in the
same industry recently, they can influence your price point.
3. Market Method
This is done by taking into account the sales of other manufacturers that have happened recently within the
industry. You can use this method for both full company sales as well as selling off some of your company
GRM or gross rent multiplier is another way to value your commercial real estate property. It’s done by
taking the price of your property and dividing it by the gross income it’s expected to generate. This type of
assessment is best for properties with a low price and a high potential for generating income, compared to
others in the same market.
VPD or value per door is usually used for apartment buildings or buildings made up of units. The entire value of the property is evenly divided between each unit and assessed as a “value per door”.
6. Cost Per Sq. Ft.
Also popular with apartment building owners, the cost per sq. ft. method takes all the areas that tenants can use combined with rental square footage to determine the cost per rentable square. This can then be weighed against the cost per sq. ft. of other lease options in the area.
Your Commercial Real Estate Valuation is Crucial to Landing the Best Deal
If you’re looking to buy or sell a commercial real estate property, you need to hire a professional for the valuation. They have all the tools at their disposal to value your business in the best possible light. Not only that, but their assessments will be much more highly valued by stakeholders and potential buyers.
Skylar Ross is a contributor at Raincatcher and a blogger. His contributing site, Raincatcher, provides useful
tools and advice for business owners who need information on how to value a business, how to create an
exit strategy and how to sell a business quickly.