How to Determine the Fair Market Value of Commercial Property
The fair market value of a commercial real estate property is the highest price that a potential buyer would pay for it and the minimum price a seller would accept. It’s sort of a middle ground where both the buyer and seller benefit equally in a transaction.
As an investor, your job is to identify hidden gems — properties that are selling below their fair market value because others can’t see their true potential the way you can — that skew that balance in your favor. So it’s critical that you understand what goes into the valuation and how to make necessary estimations and adjustments. It will also help you properly do your due diligence to ensure that you’re not losing out in a deal. For instance, selling too low below the fair market value — or buying too high — will make it difficult to cover your TUMMI (taxes, utilities, maintenance, management, and insurance) and cut into your profits.
In this article, we will explain how investors, appraisers, and brokers determine fair market value for properties and by what factors they adjust them. Once you know how it works, you will be better equipped to judge whether you are buying and selling real estate investments at the right price and setting yourself up for success.
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