How Much is Your Denver Commercial Real Estate Property Worth?
June 15, 2016
Are you thinking of selling your Denver commercial real estate property, but aren’t sure how much it would be worth? There are many ways to calculate the value of a commercial property, but there are three approaches that are most commonly used by real estate agents. So as you prepare to list your property, you should first get an idea of how much you can expect to sell it for using one of these methods:
Market Value Have you ever heard a real estate agent say that he or she needs to pull comps to figure out how much your property is worth? When Denver commercial real estate agents pull comps, they are taking a look at comparable properties that have recently sold to see how the market is valuing similar properties. Typically, a real estate agent will pull properties within the same area and around the same size, and then adjust based on the age of the building, the land to building ratio, and any other factors that could influence the price. Keep in mind that it’s best to look at properties that have sold within the last six to eight months. Since the market can fluctuate so much, looking any further than six to eight months back could be very inaccurate and lead you to a listing price that is much lower or higher than it should be. Learn more about real estate comps here.
Replacement Cost Value When Denver commercial real estate agents list a property at its replacement cost value, they are calculating what they think a new owner would pay to completely recreate the existing building. Although this is not the most common type of valuation used, it is helpful when a commercial real estate building has unique features. In these cases, it is difficult to pull comparable properties, and therefore hard to value based on what has sold in the past. Denver commercial real estate agents must also factor in the value of the land, even though that cannot be hypothetically recreated by a new buyer.
Income Approach Although the other two methods are commonly used in residential real estate, the income approach is solely for commercial real estate. Denver commercial real estate agents can choose to value a property based on the potential income that a new owner would gain from the property. To calculate the potential income, real estate agents must determine how much rent can be made through the property by looking at how much tenants pay in nearby properties. The real estate agent should also factor in the potential for vacancy by looking at the occupancy in nearby properties. A high vacancy rate would impact the new owner’s earning potential. Other expenses such as insurance, taxes and operating expenses must also be taken into consideration to get a true picture of the income potential. Any experienced Denver commercial real estate investor will seriously consider the income approach when valuing a new investment, so it’s important to calculate this before listing your property.