How to Price Your Commercial Property

Whether you’re looking to sell, lease, or simply assess your current asset, understanding pricing and valuation can help you make informed decisions that maximize returns and minimize risks.

The Three Valuation Methods

There are three primary methods used to value a property:

  1. Sales Comparison Approach
  2. Income Approach
  3. Replacement Cost Approach

 

Each method has its unique applications, strengths, and considerations.

Sales Comparison Approach

The Sales Comparison Approach, often referred to as the Market Approach, determines a property’s value by examining recent sales of similar properties within the same or comparable markets.

To use this method, gather data on recent sales of properties that share key characteristics with your property, such as location, size, age, and usage. Adjust the sale prices based on differences between your property and these comparable properties (commonly known as “comps”).

Important factors to consider when using this approach include proximity, size, condition, and any unique features that could influence value. The objective is to estimate what a current buyer would likely pay for your property based on recent sales of similar properties.

Income Approach

The Income Approach, also known as the Capitalization Approach, assesses a property’s value based on its potential to generate income. This method is particularly useful for income-producing properties like office buildings, apartment complexes, or shopping centers.

Estimate the property’s future income by analyzing rental rates, lease terms, occupancy levels, and operating expenses. This projected income is then converted into present value using a capitalization rate (cap rate).

Critical factors include Net Operating Income (NOI), cap rate, and market rental rates. It’s also essential to consider economic trends, property management efficiency, and potential for rental growth or decline.

Replacement Cost Approach

The Replacement Cost Approach calculates what it would cost to construct a building with the same utility at current prices. This method is more often used by insurance professionals and appraisers.

Which Method to Use and When

The nature of your property will typically dictate which valuation method to use. 

Owner/Users and Developers

If your property is vacant or intended for owner use, the Sales Comparison Approach might be more relevant. This method focuses on comparable Prices-per-Square-Foot, making it ideal for properties that will be sold without existing tenants.

Investors

For properties with long-term leases or multiple tenants, the Income Approach is usually preferred. Investors are primarily interested in the property’s income potential, making this method a better fit.

How to Price Your Commercial Rental Property

A well-informed pricing strategy is one of the best ways to achieve your desired outcomes. Property values can fluctuate with market conditions, improvements, and depreciation, so you need to stay up-to-date with the market to assess your equity and financial performance. 

By choosing the appropriate approach based on your property’s characteristics and your goals, you can more effectively communicate its value and negotiate from a position of strength. 

Whether you’re selling or leasing, working with a commercial broker can provide insight to help you get the most accurate value for your commercial property. 

A skilled broker uses their expertise to secure the highest price and greatest benefits for clients. ELIFIN® brokers specialize in specific property types and are supported by an in-house research team that tracks every commercial real estate sale in Columbus, Ohio, and beyond.

This research is published in The Pulse, a weekly newsletter anyone can access. ELIFIN® brokers leverage this data and their deep local market knowledge to analyze trends ane make great deals. 

For more advice about selling commercial real estate in Columbus, Ohio, visit ELIFIN® or call 800-895-9329.

Elifin Realty
marketing@elifinrealty.com
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