Why Do I Need A Commercial Valuation
- Posted by:
- Admin
- Tags:
- Posted date:
- 01-03-2024
Are you asking: why do I need a commercial valuation? Learn how commercial valuations can enhance your financial strategies, support investment decisions, and safeguard your assets.
How to calculate the value of a commercial property
The process of conducting a commercial valuation can be a long and complex one. It is the key to getting a precise value for your business's growth, obtaining a loan, or discussing lease terms. To gauge a precise property value, consider the following steps:
Preliminary due diligence helps you determine the current condition of the property.
Investigate the location, as it influences the property's value
Look at the income it generates. Remember, commercial properties are often valued based on the income they yield
Compare recent sales of similar properties in the same area.
What if my valuation is too high or too low?
If you feel that your commercial property valuation does not reflect its true worth, either being too high or excessively low, you may encounter its impacts on various aspects of property management.
These impacts might be seen in critical areas such as the terms of your loan and the potential sale of your property, among other things.
When such situational uncertainties occur, it's absolutely crucial to turn to reliable professionals who are attuned to the constant shifts in the property market. They can provide you with accurate data and trustworthy information to assist your decision-making processes.
The accurate valuation of a property is just as much an art as it is science; it requires a deep understanding of the market and significant experience with valuation processes.
Teams that deliver such services are knowledgeable in the complexities and characteristics of different property markets, making them uniquely capable of providing accurate valuations. They strive to resolve any valuation discrepancies, ensuring your interest is protected in property-related transactions or disputes.
What's The Difference Between Residential & Commercial Property Valuations?
While both residential and commercial property valuations aim to calculate the market value of a property, the valuations are not identical. The key differentiating factor involves the methods used:
The income capitalisation approach is a popular method used in commercial property valuation. It works out the property's value by assessing what an investor would be willing to pay today for the expected income the property will generate in the future. This method places a strong emphasis on factors such as the location of the property, terms of the lease and the quality of the tenants. The location is critical because a property in an attractive area can command higher rents. Lease terms matter because long, secure leases promise steady income. Tenant quality is important as reliable ones offer more financial security.
The cost approach method is primarily utilised in residential property evaluations. In this technique, the price of the land itself is considered, along with the cost of reproducing or replacing the property, factoring in any decrease in value over time, also known as depreciation. This approach is often the most accurate for new properties, where the costs to build are known. It enables a clear understanding of the true value taking into account market variables and current construction prices.
Commercial valuations utilise these methods as they are known for providing a precise estimate of value. Investors, landlords, or lenders often refer to these valuations to make informed property decisions, helping to ensure their financial stability and growth. While thorough, these methods consider a range of factors including location, property size, and market conditions. Successful execution of these evaluations leads to wise investments and business decisions, contributing positively to the economy.
The factors that influence commercial values
Several factors are at play in shaping commercial property values. These include location, size of the property, its current condition and any potential for redevelopment.
Furthermore, local market conditions, availability of similar properties, and the economic climate can hugely impact property values. The cost of a property can often vary considerably based on its location. The same property might cost significantly more in an upmarket, sought-after area compared to a less popular location.
Factors such as proximity to amenities like shops, schools and transport links, as well as the general desirability of the neighbourhood, can heavily influence property prices.
This could mean a significant difference in the amount you may need to pay or the mortgage you might have to secure. Being aware of how location can impact property cost is key when considering where you want to live or invest. The property type and its condition are key factors determining its worth.
For instance, if a property is an office building, a hotel, or a retail store, each will yield different values. Several aspects such as location, age, size, and state of repair come into play. The property's condition might include whether it's well-maintained or requires renovation. For instance, a retail store with the latest amenities will likely fetch a higher price than an outdated one. A well-maintained office building with modern facilities will have an increased value more than an old structure that needs substantial repairs.
Similarly, a multi-storey hotel in a prime location is likely to be valued higher than a standalone hotel in a less desirable location. So, when you consider investing in a property, it's essential to take these factors into account. You'd need to perform an in-depth analysis to ensure the property is worth the investment. Economic trends play a significant role in shaping property values. This refers to elements such as local and national economic conditions. For instance, if the economy is doing well, there's likely to be more demand for properties, which can push up prices.
Conversely, in a struggling economy, property prices might fall as demand decreases. Other relevant economic indicators include interest rates, inflation, and employment levels. All of these can impact people's ability to buy properties, thereby influencing property values. When it comes to the price of commercial properties, market demand plays a significant role. If there is a high demand for such properties in a particular area, often due to a thriving business community or promising economic growth, this can significantly drive up the prices.
Prospective business owners may be willing to pay a premium to secure a property in such a potentially profitable location. Furthermore, landlords recognise this demand and accordingly may increase their rental or selling prices. This is a clear demonstration of a basic economic principle in action: as demand increases, so does price, assuming supply remains constant. Therefore, understanding market demand is critical when considering commercial property investments.
Do I need an RICS commercial valuation?
A Royal Institute of Chartered Surveyors (RICS) valuation guarantees you receive a valuation report of world-renowned credibility and trustworthiness. The valuation report adheres closely to a stringent standard and a code of ethics, ensuring its accuracy and trustworthiness. You might seek a RICS valuation for a multitude of reasons, such as securing a loan, for capital gains purposes, or in order to make sound, strategic business decisions based on the exact value of your property.
In the case of needing a commercial valuation, it can prove highly beneficial to enlist the help of professionals with extensive experience in the field. A correctly performed commercial valuation can play an instrumental role in helping you understand the current, future, and potential value of your property. The valuation could affect your budget planning, investment strategy and return on investment forecasts. Having accurate, professional evaluations can give you confidence in making important financial decisions and can provide ammunition for negotiations.
They essentially take the hardship off your shoulders by ensuring the appraisal reflects the true market value of your property.
It is protection and due diligence that provides peace of mind while allowing you to focus on other aspects of your business. Feel confident in knowing that you're obtaining the best value for your property and making the best possible decisions based on that valuation.
Are you looking for advice about property valuation in Tonbridge and Kent?
Contact our expert witness surveyor to discuss your requirements.