Differences Between a Commercial and Residential Property Appraisal

Real estate is a dynamic field, and no two purchases or sales are ever the same. One area where the differences between real estate investments becomes clear is when you compare commercial and residential transactions, and this holds true even when you're talking about the appraisal process.

While you may be familiar with the residential appraisal process if you’ve ever purchased a home, appraising a commercial property is quite different. If you're considering commercial real estate investing, then being prepared is an important step in the journey, and today you'll learn all about how commercial and residential appraisals differ.

The values of the properties are calculated differently

When you have a residential home appraised, the value of the home is calculated based on a number of factors, including comparable homes in the neighborhood, the location, the condition of the property, size of the home, and other such factors. With commercial properties, however, the value is calculated using different criteria, including income and rental forecasts, tenants with long-term leases, and the recent selling price of similar properties in the area.

A commercial real estate appraisal is more complex and takes longer

As you might expect, there are many differences between commercial and residential properties, and because commercial properties are more complex to build, operate, maintain, and value, so too is the appraisal process longer and more complicated. For one thing, many residential homes are very similar, which means the appraisal process is more routine.

On the other hand, commercial buildings are all unique, and that means every appraisal has to be customized for the property. This can make it especially challenging to find comparable sales to help value the property, which is another reason commercial appraisals take longer. In general, a residential appraisal may take about a week, whereas a commercial one can take upwards of a month.

You can also expect very different reports from the two appraisal types

Because commercial and residential appraisals look at different information, the format of the appraisals is also different. A commercial appraisal is much more detailed and contains more information, and can contain as many as 100 pages of extensive market data. By contrast, most residential appraisals top out at around 15 pages.

How much does an appraisal cost? Another difference of note between commercial and residential

Cost is another area where there's an enormous disparity between commercial and residential appraisals. A typical home appraisal might run you between $300 and $500, while a commercial appraisal could range anywhere from $1,500 to $4,000, due to the complexity of the document, the length, and how long it takes to complete.

The appraisal process is very different for commercial and residential properties, so even if you’ve bought a home before and have been through an appraisal, the experience may not have prepared you for the commercial version. The main differences include how the properties are valued, the complexity of the appraisal, the cost, and how long it takes to complete.

Nonetheless, when you find the right commercial property, the appraisal is a crucial and exciting step in the purchase process. Contact us today to get the application started for your commercial loan.