subject: Methods Used For Evaluating Commercial Properties [print this page] Understanding the value of a commercial property UK requires basic knowledge of the methods put into use for this purpose, and you need help from professionals to handle this task properly. Before you utilise the services of property valuation services, it is essential to know the basics of the process, as well as the distinction between value and worth. The value of a real estate property is the estimated exchange price of the same on a certain date, determined on the basis of the comparable price information. On the other hand, worth is the amount an entity would pay, or accept, for a property, determined on the basis of the benefits produced by the property. The value in exchange is the value of the property, while the value in use is the worth of it.
Valuation of a particular property is necessary before any business decides to rent or purchase it. It is similar to marketing advice and provides the business an idea about the best bid to offer for the property depending on the benefits that it may produce. Thus it is more of calculating the worth of the property than assessing the value. Apart from this, valuation may also be necessary for a number of other purposes. The purposes for which valuation may be necessary are as follows:
For Accounting and Taxation Purposes: Estimating the market value of the property on a certain date is often necessary for account reporting as well as tax calculation as applicable.
For Insurance Purpose: This does not include valuation of the land, but only the building on the site to assess the replacement costs.
For Loan Security Assessment Purpose: Assessing the value of the property is essential for lending institutes to understand the loan to value ratio.
For Minimum Price Evaluation Purpose: This is necessary when it involves selling or auctioning off of a company property.
For Compulsory Purchase Purpose: This often comes to use when there is requisition for land for public schemes.
Be it office space in the UK or industrial unit, selecting a property must be preceded by a thorough evaluation of the property. The methods for evaluation in the UK are dependant on certain models. Here is brief overview of the common models put to use for this purpose.
Investment or Income Method: This method involves conversion of the rent of the commercial property into a capital sum to assess the value of the property. This implies the direct relation between the capital value and the income producing power of the property.
Accounts or Profits Method: Depending on the profit the commercial property can generate and deducting the working expenses apart from the rent provides an estimated value of the property. The chief determining factor is the earning capacity of the property.
Cost or Contractors Method: This method comes to use for commercial properties that are not bought and sold on the market for a considerable time. This takes into account the value of the land and the building, deducts the depreciation and obsolescence allowances and arrives at the value.
Development or Residual Method: This method evaluates the price of undeveloped land based on the potential sale price of the developed site. Deducting the expense for the development is essential to arrive at the right estimate.
Different circumstances make it necessary to utilise different methods for evaluation of commercial space. Keep this in mind when choosing the commercial property for your business.
