The importance of an appraisal to a commercial real estate deal | Blink Law, LLC

Nashville residents looking to purchase commercial property could search high and low for the right one. After finding it, several details will need addressing before the real estate transaction can close. Some would say one of the most important steps is obtaining an appraisal since the receipt of a loan, along with other financial considerations, often hinges on it.

Generally, appraisers use one of three different methods, or a combination thereof, to determine the value of a certain property whether it is located here in Nashville or elsewhere. An income capitalization appraisal looks at a property’s potential for income. Part of the equation involves reviewing the sales prices of similar properties in the area.

The sales comparison approach tends to be used a lot, but it may not provide as accurate a result. This appraisal compares the property in question to others similarly situated and in the same area. The numbers are then adjusted for any differences found between them.

Not as popular is the cost approach method. This appraisal looks only at the value of replacing the property. It does not take income generated by it into consideration. Looking at the pros and cons of each type of appraisal it is not difficult to see why appraisers often use a combination of methods instead of sticking to just one.

Moreover, it may be necessary to make sure that everyone involved in the transaction agrees with the numbers, especially since the results could require adjustments to the deal. Because the appraisal plays such an important role in the financial aspects of a commercial real estate transaction, it would be advantageous to make sure the appraiser uses the method or methods that return the best results. Determining what that would be may require some assistance.