Commercial real estate appraisal:
First of all, the value of commercial real estate is determined by the market value, that is, the most likely sale price that a typical buyer is willing to pay. The sales comparison approach is most useful when there are multiple properties that are similar to those that have recently sold, as is usually the case with single family homes.
Under the cost approach, the cost is determined by adding the value of the land to the cost of the new building, less adjustments for estimated depreciation and obsolescence. The cost approach is often used for unusual properties where comparable transactions are limited.
The value is based on the expected return required by the buyer to invest in the property being valued, which also allows for the determination of payback periods. The income approach uses two methods of real estate valuation: the direct capitalization method and the discounted cash flow method.
