In the intricate world of commercial real estate, the terms ‘commercial property valuation’ and ‘commercial property appraisal’ are often (mistakenly) used interchangeably. It is important to understand, however, that a valuation and an appraisal are not the same, and although both are pivotal in guiding decisions for commercial property investors, they serve very distinct roles.
What Constitutes a Commercial Property Valuation?
A commercial property valuation is an in-depth, formal analysis executed by a licensed professional. This process evaluates a property’s market value considering various factors like location, condition, and prevailing market trends. Often used for securing financing or resolving disputes among property owners, valuations provide a reliable, unbiased assessment of a property’s worth.
When might a commercial property valuation be used?
Most people who have a mortgage on a family home are familiar with the concept of a property valuation for the bank’s lending purposes. Valuations, however, can be sought for a wide range of reasons including, but not limited to:
- Determine what a property is likely to sell for if offered to the open market
- Suitability as security for finance applications
- Settle family estate or business disputes
- Establish potential tax liabilities such as CGT, GST, and transfer duty
- Insurance purposes
- Rating and taxation (Land tax for example)
- Rental determinations and assessments in accordance with the terms of a lease agreement
The Function of a Commercial Real Estate Appraisal
A commercial property appraisal provides an estimate (or opinion) from a licensed real estate agent or sales representative of what a property may sell for in the current market. It is important to remember that an appraisal is not to be taken as a valuation.
Offering valuable insights into a property’s potential selling price or rental income in the current market, appraisals assist property owners in strategising for sales or lease campaigns, providing a glimpse into the property’s market potential.
When might you want a commercial property appraisal?
- You are thinking of selling on the open market and would like to know an estimated sale price
- A tenant has given notice to vacate and you want a current rental estimate
- You require a market appraisal for a SMSF purposes
- A sale or lease transaction that is not arm’s length (ie the parties are related or know each other)
- You want want to determine whether to proceed with a potential investment
Distinguishing Between Valuation and Appraisal
Valuations and appraisals differ mainly in their level of formality and the purposes they serve. While valuations are necessary for formal financial or legal processes, appraisals are more advisory, aiding in preliminary decision-making stages and to establish a potential market value if considering selling.
Certification: Valuations are carried out by certified valuers, whereas appraisals can be performed by a licensed and suitably experienced commercial real estate agent or sales representative.
Purpose: Valuations are important for formal proceedings like financing or resolving disputes involving property. Appraisals, however, are usually employed to assist with a sales or leasing strategy.
By understanding these critical distinctions, commercial property owners and investors can navigate the market more effectively, ensuring they make informed decisions.Perth Commercial Property prides itself on offering expert services tailored to the commercial real estate market’s unique needs.
If you require an insightful commercial property appraisal, our team is here to help you unlock your property’s full potential
08 9443 2595