How to Value Commercial Property
Valuing different types of properties can be very different. The value of a residential property that is identical to a commercial property can be very different. This is why there are different types of valuers that specialise in different areas of property valuation. This article will explain what a commercial property is and why the property values will differ from the residential values. Furthermore, this article will also explain who will determine the value of the property and how this will be done.
What is a commercial property?
A commercial property can be a variety of different types of property but generally a commercial property will be a property where the running of a business will be conducted. This will not be a factory but will usually be an office block or a shop front. Commercial properties can have a variety of different features and as a result require a specialist to value the property.
Why will the commercial property value differ from residential property values?
The commercial property value will differ from a residential property for many reasons. This section of the article will explain some of the reasons why this will be the case. The features fo a commercial property that can affect the price can be:
- Consumer traffic. One of the main advantages of having a commercial property in a busy area is that you will get more people walking into the shop from the street. As a result of this, the commercial properties that have high foot traffic will often attract a higher price.
- Business assets. Many commercial properties will come with a variety of assets that will stay with the property. If the property is a restaurant for example the property may come with a state of the art kitchen. This may raise the price of the property.
Who will determine the value of a commercial property?
There are many ways that you can determine the value of a commercial property. One such way is to use one of the online calculators. The online calculators will take all the information of the property and will estimate its value. While this way is acceptable, it is recommended that you get a professional to visit the property and inspect it to determine the commercial properties value. By getting a professional to come out to the property you will not only get someone with experience in property estimation but the estimator will see the sight so the value can be more accurately estimated.
How will they determine the value of a commercial property?
The value of the commercial property will be determined by a variety of factors. These may include the size of the property and some of the features of the building itself. Furthermore, the property valuation will also include the popularity of the area and the amount of walking traffic there will be. These are but some of the potential factors that may influence the value of the property.
The value of a commercial property is a very important feature to know. It is especially important if you are considering buying a commercial property or selling a commercial property. There are many features that can affect the value of a commercial property, so many in fact that it is best to get a professional in to view the property and make the valuation. Since buying a commercial property can be a large investment you will want to take all the precautions that you can to ensure that your investment is a wise one.
If you are considering buying a commercial property as an investment, your lender will require a valuation of the property before deciding whether to approve the mortgage. If you already have an investment property, it is prudent to have the property valued on a regular basis so that you know how your investment plan is progressing. In this article we’ll consider what is involved in a valuation of a commercial property.
What is a valuation of a commercial property?
A valuation of a commercial property is a process resulting in a formal document that can help you to obtain finance to buy the property. Some of the features of a valuation of a commercial property are:
- A valuation is a formal process carried out by a qualified valuer who takes responsibility for the information in the valuation report. It is an independent objective professional assessment and is not the same as an opinion on the likely sale price of a property that might be put forward by an estate agent.
- The scope of a commercial property valuation is much greater than a valuation of a residential property. Commercial properties are generally larger and built on more expensive land than houses, the sums of money involved are much greater, and the responsibilities of the valuer are therefore more onerous than for valuation of a residential property.
- A lender’s criteria for valuing a commercial property are different from those for a residential property. When considering a residential mortgage the lender is concerned about ensuring that the borrower can service the loan and that the lender wouldn’t lose if the property had to be sold because the borrower defaulted on loan repayments. With a commercial property the lender wants to assess how viable the commercial investment is likely to be. Because the success of the venture depends on the business success of the tenants of the commercial building the lender wants to be sure that the existing tenants are likely to stay in business and renew their leases, and that there will be no difficulties in attracting new tenants when current leases expire. Cash flow is another important criterion and as well as considering the borrower’s ability to service the loan when there are vacancies, the lender will look at the borrower’s projected cash flow to be sure that income from rent will cover the costs of repaying the loan and managing the property as well as returning some profit. One of the major costs for the borrower is loan interest, and since interest rates on commercial property loans depend on the loan to value ratio of the lending transaction there are a lot of interrelated factors to be considered by the lender’s valuer.
When should valuations be done?
A valuation of a commercial investment property for lending purposes is a comprehensive and expensive undertaking. Therefore make sure get the right valuation at the right time to spend your money wisely:
- A formal valuation is essential when you get to the stage of applying for a loan. For the reasons explained above the lender will not advance the funds unless satisfied that the investment project is viable.
- An alternative option is a pre-purchase valuation. This is not as comprehensive or expensive as a formal valuation but can be useful in highlighting at an early stage any issues, such as council development applications, that could impact on your investment plans or your ability to get funding for a property you’re interested in.
- Ongoing checks on the value of your commercial investment property done be made regularly. The purpose of these valuation exercises is to ensure that your investment project is progressing as planned and draw your attention to any adjustments you should be making to your investment plans.
Related posts:
- How to Value Industrial Property
- Stamp Duty for Commercial Property
- Commercial inspection
- Resi Commercial Property Loan
- Commercial Building Inspector
- How to Buy Commercial Property in Your Super Fund
- Property Assessment
- Commercial property investment
- Property valuation report
- How to get a Free Online Property Valuation
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