KO Appraisal
Commercial real estate appraisal
A commercial appraisal answers one question: what is this property worth, to a defined standard of value, as of a defined date, for a defined use. Everything else in the report exists to support that answer well enough that a lender, a court, or the IRS will rely on it.
The three approaches, and when each one governs
Every commercial appraisal considers three approaches to value. What separates a credible report from a weak one is not applying all three mechanically. It is reasoning explicitly about which one the market actually relies on for this property, and saying so.
- Income capitalization: what the property earns. This governs for anything bought for its cash flow: apartments, office, retail, industrial. Direct capitalization divides stabilized net operating income by a market capitalization rate; discounted cash flow models the income stream year by year where it is irregular or where lease rollover matters.
- Sales comparison: what similar properties sold for, adjusted for the differences. Strongest where transactions are frequent and reasonably homogeneous. Weakest for special-use property where few true comparables exist.
- Cost: what it would cost to replace the improvements, less depreciation, plus land. Most relevant for new construction and special-use property that rarely trades, and generally least reliable for older income property, where accrued depreciation becomes difficult to measure.
Highest and best use comes before any of it
Before value, the appraiser must determine the highest and best use, the legally permissible, physically possible, financially feasible, and maximally productive use of the property. This is not a formality. A vacant industrial parcel zoned for mixed-use may be worth substantially more as a development site than as what it is today, and an appraisal that skips this question can arrive at a defensible-looking number that answers the wrong problem.
Why the intended use changes the report
The same property can support different assignments. A lender needs market value under federal appraisal regulations. An estate needs fair market value at a date in the past. A condemnation matter needs just compensation under California law, which includes severance damages the lender report would never address.
Under USPAP the appraiser must identify the intended user and intended use at the outset, because those determine scope of work. This is also why an appraisal ordered for one purpose often cannot simply be reused for another.
What you should expect to receive
A narrative appraisal report identifying the client and intended users, the intended use, the effective date, the property rights appraised, the scope of work, the highest and best use analysis, the approaches applied and the reasoning for those excluded, reconciliation to a final opinion, and the appraiser's certification and licence. Standard turnaround is one to three weeks depending on complexity and data availability.
Common questions
How is a commercial appraisal different from a residential one?
Who is allowed to appraise commercial property in California?
Can I use an appraisal my lender ordered for my estate planning?
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.