KO Appraisal
Commercial appraisal methods
Three approaches, and the judgment about which one governs. That judgment, not the arithmetic. Is what separates a report that survives review from one that does not.
Direct capitalization
Stabilized net operating income divided by a market capitalization rate. Fast, transparent, and the method the market itself uses for stabilized income property.
Its weakness is that everything depends on two inputs. A cap rate moved by half a point swings value by roughly ten percent, so the rate must be extracted from actual comparable sales and defended, not borrowed from a survey.
Discounted cash flow
Models income year by year over a holding period, then discounts it plus a reversion to present value. The right tool where income is irregular, significant lease rollover, lease-up of vacant space, planned capital expenditure, or below-market leases rolling to market.
It is also the easiest approach to abuse, since small changes to growth and discount assumptions compound. A credible DCF states and supports every assumption.
Sales comparison
Recent sales of similar property, adjusted for differences in location, size, condition, and terms. Strongest where transactions are frequent and reasonably alike.
The adjustments are where it is won or lost. Extracted from paired sales and market evidence they are defensible; asserted without support they are the first thing an opposing expert attacks.
Cost approach
Replacement cost new, less accrued depreciation, plus land value. Most useful for new or nearly new construction and for special-use property that rarely trades. Least reliable for older income property, where measuring accrued depreciation becomes largely a matter of judgment.
Reconciliation
The approaches will not agree, and averaging them is not analysis. Reconciliation weighs each by the quality of its data and its relevance to how this property type actually trades, and states the reasoning. A report that averages three numbers without explaining why is one an opposing expert will take apart.
Common questions
Which method is most accurate?
Do all three have to be used?
Related reading
Next step
Tell me about the property.
Most assignments start with a short call, property type, the purpose of the appraisal, and the deadline you are working against. You get a fixed quote before any engagement, never contingent on the value reached.
Typical commercial fees range $2,000–$4,000. Residential and simpler assignments quote lower. Every engagement is quoted in advance, so the figure is known before work begins.