Why Commercial Property Value Matters?
Very simply, the price paid for a commercial real estate property may be the single biggest driver of investment returns in a commercial real estate transaction. It matters most in two places, the purchase and the sale.
During the purchase phase of a transaction, a property can be an excellent investment opportunity in all regards, but it can be difficult for a real estate investor to meet their return objectives if they pay too much to acquire it. So, getting the property value right in the purchase phase is a critical first step towards making a healthy profit. As such, buyers are incentivized to pay as little as possible in a purchase.
But, when it comes time to sell the property, sellers are motivated to get as much as they possibly can for it. This is because the profit that results from the difference between the purchase price and the sales price is one of the largest components of investment returns.
In both cases, real estate property values – and the methodologies used to calculate them – matter because an owner wants to do everything they possibly can to maximize their return.