21 Nov How Do I Know My Appraisal is Accurate?

Buying or selling a property is a big investment.  You want to ensure that you’re getting a fair price for your property.  What happens if the property is appraised too high or too low?  Do you trust the first appraisal, or should you request multiple appraisals from different appraisers?  While the short answer is that if you’re uncomfortable with what the property has been appraised for, you should get a second opinion (i.e. appraised by a different appraiser), doing your own research can also help you understand at least a ballpark of what the property may be worth.

As with many big investments, research is key.  An appraiser is an individual licensed to conduct a thorough inspection of a property to assess its value.  It’s important to note that the value determined by the appraiser is not always the same as what a seller may be listing the property for.  What are some factors that an appraiser looks at when evaluating the value of the property?  There are three main methods to which appraisers rely on assessing the current value of property: the cost approach, the market approach and the income capitalization approach.

The cost approach determines the value of commercial real estate through an equation calculating how much it would cost to replicate the property after deducting accrued depreciation.  This approach is typically considered more accurate towards newer construction and less so with older construction.  The market approach is also known as the sales comparison approach or comparison approach.  This approach is the most commonly used and accepted method to appraising commercial real estate.  The comparison approach looks at the comparables, similar properties and what they have sold for recently.  The final approach is the income capitalization approach or income approach for short.  This approach to valuing commercial real estate considers the potential income that can be derived from the property (i.e. apartment complexes) to asses the market value of the property.

When going through the appraisal process, it’s important to bear in mind that it’s not always the higher value that’s accurate.  There’s no harm in taking your time and getting that second appraiser to come out if you’re uncomfortable.  Real estate is a big investment and a hasty decision could impact the true value of the property.  After all, it’s not personal, it’s business.

At Elifin, we offer a free BPO (Broker’s Price Opinion) on commercial properties. If you’re interested in knowing what you could list your property for, contact us today.