A business should develop an informed opinion regarding the market value of a particular piece of real estate. This process is commonly known as property valuation and is frequently done by a licensed appraiser. Property valuations are sometimes taken for granted by businesses, particularly with smaller companies that have little experience in leasing and real estate. Having an overview of some of these common appraisal terms can be very helpful as well as be an effective tool for companies that are looking for a great office space structure that is also a great real estate bargain.

Market Value Monitoring

One of the shortcomings of some businesses when looking at investing in office space is to not get substantive information on a particular commercial location which can result in that company actually suffering a financial loss in the acquisition of such office space. Market value monitoring is very important to get an up-to-date and accurate economic basis for evaluation purposes. No company would want to be tied to a lease or acquire property that is over-priced; neither would a building owner want to have a lease that is under-priced. To protect the interests of both parties, the projected value as well as market expectations should meet together at a common point and this can only be realized through close market value monitoring.

Commercial Comparable Sales

Property valuations have three major types of approaches: sales comparison, cost and income. A sales comparison approach is the most commonly used one for valuation purposes. It is easy to understand and is usually used for price comparison on office leases and other types of real estate appraisals.

This particular process involves two different steps: finding or selecting comparable properties and then making any necessary adjustments to the figures.

Selecting any commensurate sales is the most difficult part of the approach. Since it is so important to an accurate analysis, it involves research and investigation to find properties that most closely resemble or equate to the property being considered.

The next step of making appropriate adjustments involves a variety of techniques that can be used by an appraiser. One of the most widely performed techniques of this approach is the matched pair analysis.

Matched Pair Analysis

Matched pair analysis is one of the varieties of effective techniques to make appropriate adjustments to comparable sales. This technique involves three steps:

• Locating - The first step in performing this analysis is to find sales that are comparable in all areas except for the particular item that is a potential determining factor. It would be preferable to find at least three sets of identical pairs for each subject that is being compared. This is frequently not feasible, so many times adjustments must be made to bring the compared objects as close to even as possible.

• Evaluating – The next step is to assess the selling price of each one of the pair, either by the gross sales price or the sales price per square footage or size.

• Reviewing – The last step is to review the outcome of this comparison to see if it is a logical result such as similar units in which one unit has extensive outside landscaping and the other does not. Is the price of the first one reasonable for extensive landscaping – or not?

Finding valuable office space for a business and being able to do some type of comparison is not always an easy thing to accomplish. Utilizing the above form of comparison can be a valuable addition to a company’s arsenal against high property leasing or purchasing costs. This tool can definitely give you some leverage in the negotiation process when searching for economical office space!