Commercial value - Income & market approach

[Greg Neuman]

I'm looking at a 5 unit building and at first glance the property looks like it has good potential.  It's in need of updating and all the units are under rented.  I want to run preliminary numbers in its current state, and the rehabbed / higher rent state, so I contacted the commercial department of my local credit union.  When I asked them how they determine the value of commercial property, the response I received was as follows:

"Typically will do an income approach off of rents and expenses and also a market approach, based on what similar properties are selling for. The final value is typically somewhere between those two values."

My concern is it will be much more difficult to assume the forced appreciation value with their approach.  Has anyone else run into this?  I plan on contacting other banks / credit unions until I find one that will value the property based on income / expense approach, but wanted to see if anyone else has purchased commercial property with this appraisal method.  If so, any tips / advice?

[Greg Dickerson]

@Greg Neuman Yes all commercial properties are appraised using the 3 approaches. Cost , income and comps. This is how an MAI appraisers value commercial. 

Usually they lean towards income unless the property is in a highly deisirable area. In that case it’s comps and cost to build new.