Texas Commercial Appraisals Blog #2


Types of Commercial Properties Which Need Appraising


Here are some of the more common types of commercial properties, which are appraised on a routine basis:


Improved Income Property – The four primary improved commercial property types, which are purchased for the income stream which they generate are:  Apartments, retail, office, and industrial.  Other improved types include medical buildings, restaurants, convenience stores, hotels, and other special purpose properties, such as marinas, golf courses, and ice skating rinks. 


If an investor is buying an investment property simply for the income and anticipated property price appreciation, then they are seeking a target “return on investment”, which is usually measured as an overall capitalization rate (the cap rate), a yield, or an internal rate of return.


Improved Owner-Occupied Property – Smaller commercial properties can be purchased by owners for owner-occupancy and not leased out for a return on investment.  Examples of commercial owner-occupied properties include a small to medium size office or condominium, medical office or condominium, or retail building. 


Sometimes an owner-occupy will purchase a building larger than needed for their business and then rent out the remaining space(s) to tenants in order to generate income to off-set their operating expenses and help pay the mortgage payment or provide a return on the investment.


Vacant Commercial Lot – This category covers all unimproved commercial lots.  Investors can buy unimproved or vacant commercial lots as an investment or to construct a new building on the lot, which would be an investment (ie, a shopping center) or an owner-occupied building (their dental office).


Vacant Commercial Land – Commercial Subdivision – This type of property is usually a medium to large acreage tract, which is proposed for a subdivision and development into smaller lots, such as an industrial subdivision.


Vacant Commercial Land – Residential Subdivision – This type of property is usually a medium to large acreage tract, which is proposed for a subdivision into single family residential lots, either a traditional tract home subdivision or small acreage lots if the property is located in the country.


Market Rent – All of the above commercial properties would be appraised to answer the question “What is it worth?” 


In addition to value assignments, the appraiser is sometimes requested to answer the question “What is the market rent of the property?” 


This market rent question can be part of the appraisal of the property in the Income Approach or can be the only value-related question being asked by the client of the appraiser – ie, “I just need to know how much I can rent this retail space for if I list it on the open market for lease.”




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