The Best Appraisal for Income Producing Properties

ATLANTA—Commercial real estate appraisals are typically significantly different and more complex than single-family residential appraisals. So says Paulk Turner, director of J.H. Berry & Gilbert's appraisal and valuation services division.

In part one of this exclusive interview, Turner educated us on the ins and outs of the Cost Approach to appraisals. The Cost Approach is based on the principle of substitution, that an informed and rational investor would pay no more for a property than the cost to construct a similar and competitive property. In part two, he discusses the Sales Comparison Approach.

“Similar to the Cost Approach, the Sales Comparison Approach is based on the premise that an informed and rational buyer would pay no more for a specific property than the cost of obtaining a property with the same quality, utility, and perceived benefits of ownership, and is based largely on the principle of substitution,” Turner tells GlobeSt.com. Here's the actual definition, according to The Appraisal of Real Estate – 14^th Edition:

“The process of deriving a value indication for the subject property by comparing similar properties that have recently sold with the property being appraised, identifying appropriate units of comparison, and making adjustments to the sales prices of the comparable properties based on relevant, market-derived elements of comparison.  The sales comparison approach may be used to value improved properties, vacant land, or land being considered as though vacant when an adequate supply of comparable sales is available.”

So when is this approach the best approach to appraisals? Turner sounds off:

“This approach is the most applicable approach for owner-occupied properties with limited income-producing potential, and is also the main approach used in residential appraisals,” Turner says. “Further, the land value portion of the Cost Approach is estimated by the Sales Comparison Approach.”

ATLANTA—Commercial real estate appraisals are typically significantly different and more complex than single-family residential appraisals. So says Paulk Turner, director of J.H. Berry & Gilbert's appraisal and valuation services division.

In part one of this exclusive interview, Turner educated us on the ins and outs of the Cost Approach to appraisals. The Cost Approach is based on the principle of substitution, that an informed and rational investor would pay no more for a property than the cost to construct a similar and competitive property. In part two, he discusses the Sales Comparison Approach.

“Similar to the Cost Approach, the Sales Comparison Approach is based on the premise that an informed and rational buyer would pay no more for a specific property than the cost of obtaining a property with the same quality, utility, and perceived benefits of ownership, and is based largely on the principle of substitution,” Turner tells GlobeSt.com. Here's the actual definition, according to The Appraisal of Real Estate – 14^th Edition:

“The process of deriving a value indication for the subject property by comparing similar properties that have recently sold with the property being appraised, identifying appropriate units of comparison, and making adjustments to the sales prices of the comparable properties based on relevant, market-derived elements of comparison.  The sales comparison approach may be used to value improved properties, vacant land, or land being considered as though vacant when an adequate supply of comparable sales is available.”

So when is this approach the best approach to appraisals? Turner sounds off:

“This approach is the most applicable approach for owner-occupied properties with limited income-producing potential, and is also the main approach used in residential appraisals,” Turner says. “Further, the land value portion of the Cost Approach is estimated by the Sales Comparison Approach.”