The sales comparison approach is a popular and common valuation methodology for real estate. Yet, there are many nuances to the sales comparison approach for commercial real estate that are misunderstood. The sales comparison approach can be particularly helpful when a property does not generate lease income, or that information is not available. In this …
Appraisers use three different methods to estimate the value of a property. The income approach considers the value as the present value of future expected cash flows generated by the property. It is most accurate when valuing commercial properties with rental income in active markets. The sales comparison method relates the estimated value of the …
The concept of highest and best use is one of the fundamental principles that underlie real estate appraisal. Highest and best use requires that the appraisal considers not just the current use of the property but also the potential value associated with alternative uses. The Appraisal Institute has four tests that appraisers can use in …
The cap rate is an important concept in commercial real estate, and it is widely used. There is often confusion about how to calculate the cap rate using various methods. The purpose of this article is to demonstrate several ways to calculate the cap rate. How to Calculate the Cap Rate Ratio Perhaps the simplest …
It’s important to understand the math behind present value calculations because it helps you see what’s actually happening inside a calculator or spreadsheet. And once you understand the math, the calculations become much more intuitive. Yet, many people struggle with understanding present value formulas and calculations. In this post we’ll take a deep dive into …
While no one is happy when a foreclosure occurs, it does allow a lender to recoup funds it may lose when a borrower defaults. Unfortunately, because the foreclosure process takes time, and the borrower stays in control of the property and its income stream during that time, foreclosure also poses significant risks to the lender. …
Market leasing assumptions define what happens after a tenant lease expires in a commercial property. Since it’s unknown whether the tenant will renew its lease or not, there are two sets of assumptions. One set of assumptions is used if a new tenant needs to be found. The second set of assumptions is used if …
A borrower facing foreclosure is in a bad spot. Loss of their property, litigation costs, damage to their reputation because of the lawsuit, and damage to their ability to borrow money in the future. A lender facing foreclosure is in a bad spot too. The risk that a foreclosure sale won’t bring enough proceeds to …
When a borrower fails to meet its loan obligations, the lender may try to foreclose on the property securing the loan. “Foreclosure” is just the series of steps a lender has to take in order to force the sale of such property and use the sale proceeds to recover its unpaid debt. This is simple enough …
How do you feel about a criminal conviction on your record? Defending against a civil suit for intentional infliction of emotional damage? They don’t sound too bad? Well, how about a fistfight with a tenant on the front lawn of your rental property? If you’d prefer to avoid these scenarios, it might be a good …