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A Texas Commercial Real Estate Agent’s Guide to Valuing Your Property

Posted by Adrianne Gosselin on August 16, 2023

As your trusted Texas commercial real estate agents, we’re committed to helping you navigate the intricacies of valuing your commercial property. Let’s delve into the essential factors and methodologies to ensure you’re well-equipped to maximize your asset’s potential.

Why Determining Your CRE’s Value is a Game-Changer

Understanding the market value of your property is crucial. By doing so, you can:

  • Establish a competitive listing price.
  • Recognize avenues for enhancing your property’s value.
  • Ensure that your asset aligns with the current market pulse.

On the lending front, banks and financial institutions underscore the importance of property valuation during the underwriting process. With most commercial loans typically at a 70% loan-to-value ratio, an accurate property valuation sets the foundation for both the down payment and the mortgage’s terms.

Key Variables Influencing Your Commercial Property’s Value

The value of your property hinges on the delicate balance between its allure and the returns it promises. Here’s what matters most:

  • Demand: How sought-after is your property?
  • Usability: Does it serve a unique, functional purpose?
  • Availability: Is your property type a dime a dozen or a rare find?
  • Investment Potential: What financial returns can it promise a prospective buyer?

Remember, for your property to command its best price, these factors need to be in sync.

The Toolbox: Methods to Ascertain Your Commercial Property’s Worth

The commercial real estate world is nuanced, and valuing properties requires a multifaceted approach. Here’s what we consider:

  1. Sales Comparison Approach: This is the benchmarking game, comparing recent sales of properties similar to yours in the vicinity.
  2. Cost Approach: Ever thought about rebuilding your property? This approach adds up those costs, considering current land value, materials, and construction expenses.
  3. Income Capitalization Approach: It’s all about the green! We’ll look at the net income your property might generate and compare it to its peers in the market.
  4. Value per Rentable Square Foot: Here, we consider the space that can be leased out and evaluate its potential revenue stream.
  5. Price per Unit: Especially vital for multifamily properties, it breaks down the value concerning the number of units.
  6. Gross Rent Multiplier: This method links your property’s price tag to its potential yearly income.

Crucial CRE Valuation Jargon You Should Know

In our industry, knowledge is power. Here are some vital terms to keep in your back pocket:

  • Price per Square Foot: How does your property’s price weigh up against its size?
  • Net Operating Income (NOI): Once we subtract the routine operational expenses (excluding any mortgage costs) – what’s the annual income left?
  • Cap Rate: A predictor of potential returns, it’s the NOI as a percentage of the property’s value.
  • Debt Service: Think of this as your yearly mortgage ‘subscription’ or repayment.
  • Gross Rent: The complete revenue pie, including rent and perks like parking.
  • Property Value: Our goal! It’s the forecasted selling price or income stream your property can command.

In essence, every property is unique, and its valuation is an art fused with data-driven science. Our mission, as your Texas commercial real estate agents, are to arm you with accurate insights and tailored advice, ensuring you achieve the pinnacle of value for your esteemed asset. Give us a call today and we can help you move forward with selling your commercial investment.

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