O’Neil Appraisal, LLC performs all types of commercial appraisals. With over 35 years in real estate valuation and consulting experience in Southeast Michigan and the Metro Detroit area, our senior Certified General Appraiser, Ray O’Neil, is actively engaged in a wide range of commercial and vacant land assignments, appraisals for financial institutions for loan originations and modifications, foreclosures, governmental and private asset acquisitions and dispositions. Ray has completed an extensive list of large scale assignments and appraisals for special purpose properties, including gross appraisals encompassing 100 commercial and industrial properties and over 450 residential properties.
Examples of the types of commercial properties we appraise are:
Shopping Centers/Strip Malls
Single and Multi-Tenanted Industrial Buildings
Large Scale Multi-Use High Rise Complexes
Low Rise Office Buildings
Vacant Land for Various Uses
Vacant & Improved Recreational Lands
New & Existing Developments/Subdivisions
Business District Mixed Use/Store Fronts
Office Build-Outs and Draw Inspections
Gas Service Stations/Convenience Stores
Medical Office Buildings
Retail Furniture Stores
Auto Repair Facilities
Mobile Home Parks
The nature of the types of appraisals include:
Market & Demographic Analysis
Right of Way Easements
Property Tax Appeal
Overview of a Commercial Appraisal:
People who have never needed a commercial appraisal are often surprised at the higher cost of the appraisal in addition to the amount of time it takes to complete the assignment. Our fee for a commercial appraisal typically begins at $2500.00 and increases depending upon the complexity of the property, the availability of comparable data and the client’s required turn-around time. A typical commercial appraisal can take from 30 to 60 man hours to complete. It is not unusual for this type of appraisal to take from 3 to 6 weeks to finalize.
The research and analysis required for commercial appraisals are much more extensive than for residential appraisals. A commercial report is typically prepared in a narrative style. This type of appraisal is more in-depth and the reporting requirements that the appraiser must adhere to are more stringent. As in all appraisals, the appraiser must comply with the rigorous set of appraisal standards called the Uniform Standards of Professional Appraisal Practice (USPAP). These standards are, for the most part, what determine the appraisal process. Although a client may call requesting a “rush job” on a commercial appraisal, the appraiser cannot take short-cuts. The appraisal must be completed in accordance with USPAP Standards no matter what the agreed upon fee and turn-around time.
A commercial property must be appraised in terms of its Highest and Best Use. Determination of a property’s highest and best use is one of the first steps in the appraisal process. The definition of Highest and Best Use is:
“The reasonably probable and legal use of vacant land or an improved property, which is physically possible, appropriately supported, financially feasible, and that results in the highest value.” The Dictionary of Real Estate Appraisal, Fourth Edition. Appraisal Institute 2002.
Once the appraiser has determined the highest and best use of the property, the appropriate approaches to value can then be applied. The three (3) approaches to value that the appraiser must consider are:
1) Cost Approach: A value indication derived by estimating the current cost to construct a reproduction of (or replacement for) the existing structure. These include entrepreneurial incentive, deducting depreciation from the total cost and adding the estimated land value.
2) Sales Comparison Approach: The value indicated by comparing the property being appraised to similar properties that have recently sold. Units of comparison are applied and adjustments made for the differences between the subject and the comparables. Units of comparison for income producing properties can include the Effective Gross Income Multiplier (EGIM), the Net Operating Income (NOI) and the Overall Capitalization Rate (OAR).
3) Income Capitalization Approach: A value indication for an income producing property by converting its anticipated benefits (cash flows and reversion) into property value. Commercial real estate is generally valued in relation to its ability to produce income, thus an analysis of a property’s ability to provide a sufficient net annual return on invested capital is an important method of valuation. The two primary methods used are Direct Capitalization and Discounted Cash Flow Analysis (DCF).
The last step in the process is called the “reconciliation” of value indications. To arrive at the final estimate of value, the appraiser usually considers the relative applicability of each of the three approaches to value. Two or more of the value indications derived from market data are resolved into a final opinion of value. The unique characteristics of the subject property will determine which of the three approaches to value will carry the greatest weight and produce the most credible and reliable results in the final valuation.
The above description is just an overview of valuing a commercial property. As you can see, it is a complex and painstaking process that involves a much more in-depth analysis and reporting format than does a typical residential appraisal.
Please feel free to contact us at (248) 674-3333 for any questions you may have about the commercial appraisal process and a price quote for your property.