Before understanding more about the finer points of commercial real estate valuation, let us try and have some basic understanding about real estate valuation in the first place. Valuation of property is basically done to have a clear idea about the fair market value of the same. There is no doubt that the market could be good indicator about the fair value of a property. However, this needs to be confirmed by an authority who has the legal standing.
It is here that the role of property valuers comes into play. They are professionals who are mandated by the law to value a property using various inputs and methods and then come out with what they feel is the fair market value. In most of the cases these valuation reports are taken as the bible. In fact it would be pertinent to point that in most cases the valuation forms the basis for calculating property taxes, stamp duty agreements just to name a few.
Now let us try and have some basic understanding between commercial valuations when compared to domestic property valuation. While the objective of both are the same there are some basic differences in the way the entire valuation is done. While the basic objective of any domestic real estate purchase is to stay and spend life in it, it is no so in the case of commercial properties. In most of the cases, the main objective of buying or building any commercial property is twofold. First it is to ensure that the buyers are able to get some regular passive income by way of rent or lease for a long period of time. Secondly, the objective is also to ensure that the property offers attractive return on investment over a period of time.
Hence, when a commercial property is valued the point of passive income and future return on investment are the two points that are taken into account. Hence, the methods of commercial property valuation are significantly different from domestic property valuation. Further, when a commercial property is bought, the land on which it is constructed could belong to several owners. Hence, valuation also become that much more complicated. The valuers have to check record of all those sellers who are selling their lands to the new buyers. Hence, there is no doubt that while the objective might be the same, valuing commercial buildings and properties could be quite complicated to say the least.