Valuation of Commercial Property

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ny_rn
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Valuation of Commercial Property

Post by ny_rn »

I have zero experience with residential and commercial real estate. I am in the process of finding the estimate value of a commercial property my father owns and is fully paid off. On the property sits two structures (home and small take-out restaurant). No one lives in the home and he no longer wants to run the take-out restaurant. I believe he paid $35k-$40k in cash for the property approximately 15-years ago. My father is looking to sale the entire property with or without the equipment in the restaurant. How would I go about valuing this property (minus the equipment inside)? Any advice would be greatly appreciated.

Just to give you an idea, here is the address - https://www.google.com/maps/place/3319+ ... d7!6m1!1e1
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David Jay
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Re: Valuation of Commercial Property

Post by David Jay »

He needs to talk to a realtor who has experience in the Little Rock market. They will usually give you a price because they want the listing.

Realtors (in conjunction with the seller) set the listing price for a property. Since they want it to sell (i.e. get paid) but they also want the highest possible sale price (they are typically paid on percentage), they will usually advise a price that is a pretty good guess of market price.
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dm200
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Re: Valuation of Commercial Property

Post by dm200 »

Years ago, my late father-in-law had a similar business and house (rented out) situation and when he retired, sold the property. In order to sell (and get a decent sale price) he took back a mortgage on the property. It ended up working out fine.

Can the house and business be separated?

In a sale, would he consider taking back a mortgage on the property (perhaps with a down payment)?
WJW
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Re: Valuation of Commercial Property

Post by WJW »

A property is only worth what a buyer is willing to pay for it but my first step would be to hire a professional appraiser and get an appraisal report. This will help you determine the value that will be able to get financing. I would then put the property on the market with a commercial realtor for +/- 15% more than the appraisal to leave room for negotiations. You may be lucky and have a buyer come in with cash who really wants the property. It has happened to me in the residential sector.
Last edited by WJW on Fri Oct 28, 2016 10:07 am, edited 1 time in total.
WhyNotUs
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Re: Valuation of Commercial Property

Post by WhyNotUs »

Part of value is what could happen on the property and what, if any, demand there is for those uses.

I would start with calling the local planning office and getting a copy of the zoning with the uses allowed and dimensional standards for the property to understand the range of possibilities for the property.

Once I had a better understanding of my property then I would find a real estate office that offers both commercial and residential sales, not one that is only residential. I would ask to meet with a commercial property realtor and tell them your father's situation and that he needs a market analysis for the property that includes a residential assessment.

A quick peak at the site on google suggests that he is not sitting on a gold mine but I did not see anything that would make it impossible to sell based on location and access. Being realistic on price is important if your father wishes to dispose of this sooner rather than later.This property is not at a key intersection and as someone else noted, there is a good chance that the buyer for this type of property will want to put 20-25% down and ask your father to carry a note. You should do some homework on this and have a position before you list it.

Good luck!
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Meg77
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Re: Valuation of Commercial Property

Post by Meg77 »

Commercial property values are based primarily upon the income that they generate.

The capitalization rate or cap rate is used to back into a valuation. CAP rate is the ratio of net operating income to property value. So if a property was listed for $1,000,000 and generated an NOI of $100,000, then the cap rate would be 10%. Realtors/appraisers/buyers will look at the CAP rate of recent similar properties that have sold and the net operating income your property generates (or could generate) and use that to establish a valuation.

In short, you can't really do it on your own unless you have access to MLS and other data about recent sales. I'd consult a commercial real estate agent and let them do the work. That's their job!
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WJW
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Re: Valuation of Commercial Property

Post by WJW »

WhyNotUs wrote:Part of value is what could happen on the property and what, if any, demand there is for those uses.

I would start with calling the local planning office and getting a copy of the zoning with the uses allowed and dimensional standards for the property to understand the range of possibilities for the property.
The appraisal report should include a highest and best use analysis of said property. Since the OP has no experience in real estate, this would be an exercise in futility.
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HueyLD
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Re: Valuation of Commercial Property

Post by HueyLD »

Get a realtor who is familiar with the specific area for advice.

AFAIK, that area in Little Rock has been in decline for years and it may be best to sell it at whatever market price he can get.
WJW
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Re: Valuation of Commercial Property

Post by WJW »

HueyLD wrote:Get a realtor who is familiar with the specific area for advice.

AFAIK, that area in Little Rock has been in decline for years and it may be best to sell it at whatever market price he can get.
I agree, the market will determine the price but I still think it is a good idea to have a 3rd party unbiased opinion of the property value from a professional and reputable appraiser, who has no interest in the sale of the property. A realtor could go either way; they could want to sell it at a higher price to try and maximize their commission (where it might linger on the market), or they could want to move it off the shelf quickly (or to someone they know personally) at a lower price.
Topic Author
ny_rn
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Re: Valuation of Commercial Property

Post by ny_rn »

dm200 wrote:Years ago, my late father-in-law had a similar business and house (rented out) situation and when he retired, sold the property. In order to sell (and get a decent sale price) he took back a mortgage on the property. It ended up working out fine.

Can the house and business be separated?

In a sale, would he consider taking back a mortgage on the property (perhaps with a down payment)?
The house and business are separated physically, but I think he wants to "be done with everything." I will have to present the idea of taking back a mortgage on the property. Thanks!
Topic Author
ny_rn
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Re: Valuation of Commercial Property

Post by ny_rn »

WhyNotUs wrote:Part of value is what could happen on the property and what, if any, demand there is for those uses.

I would start with calling the local planning office and getting a copy of the zoning with the uses allowed and dimensional standards for the property to understand the range of possibilities for the property.
Great idea. Thank you!
bb
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Re: Valuation of Commercial Property

Post by bb »

I know someone who offered seller financing - buyer eventually stopped paying
and it took several years to get the property back. No I am not kidding.
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