All Forum Posts by: Damien McDonald

We are selling a commercial property (all retail and office space) and are getting an independent valuation done on it. We have a copy of the draft valuation, and the report uses the capitalization method as the primary indication of value. In coming up with a cap rate, the appraiser selects 5 comps. 3 of the comps were 75%-81% occupied when they sold. The appraiser made adjustments to the comps income numbers to bring them to 100% occupancy (as is the subject property we are selling). My question is, is it appropriate to adjust the occupancy of the comps when assessing the comps cap rate?

My thought is that if you want to find the actual cap rate of a comparable transaction, you should use the real income (and occupancy) and the real sales price.

Thanks in advance for any input.

Damien

Thanks @Wayne Brooks and @Mateusz Prawdzik. Yes, this is for my primary. I understand that the lender or buyer don't care about the cost to build, but I think the appraiser should care as they are held to certain professional standards (USPAP etc.). It just seems that when sales comps are limited, the cost approach for new construction is a no brainer (or at least should be considered).

Thanks for the reply Robert. Because the appraiser has nothing to see (except the plans), that's why I think the cost to build would be the most appropriate approach to value. I agree that they tend to approach new construction conservatively. Oh well.

Hi guys, when obtaining a construction loan from a portfolio lender for new construction on an empty lot, I would think the cost approach to value would be the most appropriate for the appraisal. I was given an appraisal that solely used sales comps. The comps used were not great, and the appraisal came in below the 80% LTV. Should cost approach be used, possibly a weighted average of cost and comps?

Thanks,

Damien