The appraisal of commercial Real Estate involves evaluating property by analyzing it's income producing capabilities. At it's simplest an estimate of value can be determined with a pen and a napkin by dividing income by required return ($1,000,000 income/10% return=$10,000,000 Value). These are the basic components that make up a value estimate. Further complicating matters, each component is comprised of numerous "ingredients" that can be somewhat subjective. For instance we all have our own level of required return based on our risk tolerance. We also may each calculate income and expenses differently since anticipated rents, expenses and trends can vary.
As an individual buyer or seller, you may feel confident in your napkin analysis. It should be obvious, however, that each individual will conclude a value based on their own analysis. The job of an appraiser is to make this same simple calculation, based on typical or common "ingredients" observed in the marketplace.
When lenders and other third parties are a part of the transaction, they not only make their own calculations, but almost always want an objective appraisal from a Certified General Appraiser or MAI (Member of the Appraisal Institute). We answer the question, "What would the TYPICAL buyer most likely pay?". At Wieme, Rende and Associates we have answered that question over 7,000 times.
