For valuation purposes on commercial buildings, a common standard is a price/ft. analysis. This valuation technique often forms a part of ‘Direct Comparison Approach to Value’ (in Appraisal Terminology), and basically establishes a value range, against comparable building sales within the market.
Price per ft. in its most basic terms, is derived by dividing the sale price by the gross square footage of the building. Using a simple example to illustrate:
Sale Price $200,000
Building Sq. Ft. 2,000’
Price/Ft. $100/ft.
This per ft. rate is also inclusive of the land value.
In any given market, sales data of comparable buildings sold can be obtained, and a determination made as to current $/ft. ranges. In looking at comparable sales data, you will want to ensure that your comparative buildings are similar in not only size – but also age, location, condition, etc. Some comparable buildings will be better than others. Make every attempt to pay the greatest attention to the most relevant sales comparisons.
Without getting too complicated for these purposes, adjustments (up or down), can and should be made. For example, if a comparable sale property is 35 years old and a property you are considering making an offer on is less than 5 years old, an upward adjustment on a per ft. basis favouring the newer property would seem to be reasonable. This exercise should done be to confirm that you are within a value range of what is deemed reasonable within your market.
Much more on building valuations to follow - and as always consult with an experienced commercial broker in order to assist you in determining current building valuations in your area. To follow us on Twitter, click here.
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