How CRE Valuation Works

  
The Methods Appraisers UseThere are three commercially recognized valuation models for real estate: the income approach (cash flows), the sales comparison approach (comparable market analysis), and the cost approach. The method or methods commercial real estate appraisers employ to determine a property’s value varies depending on the type of property in question.Income ApproachThe income approach is the primary method used to appraise income-producing properties like multifamily apartment complexes, office buildings, and retail centers. While this approach is considered to be the most meaningful and accurate gauge of CRE property value, it is also the most complex.The first step in using the income approach is to determine a property’s NOI, or the revenue that a property generates minus necessary operating expenses. Determining NOI is often an exceedingly detailed process in which an appraiser creates an entire profit and loss statement for a property, factoring in details like projected maintenance expenses and vacancy rates over an extended period of time.Once the NOI has been assessed, the appraiser will survey other similar-earning properties in the same area to determine the current market value of the property in question. Capitalization rate can then be calculated by dividing the NOI by the determined market value.Finally, the appraiser divides the property’s NOI by its cap rate to arrive at a value estimate.Because it takes into account so many essential metrics, the income approach is largely regarded as the most valuable and information-dense CRE appraisal method. But for the same reason, this method requires close attention to detail, as an incorrect assessment of any factor can dramatically alter the resulting valuation.
https://reonomy.com/blog/post/how-cre-valuation-works We Make a Simple Pledge to

Communicate, in a timely fashion, each appraisal, analysis, and opinion without bias or partiality

Abstain from behavior that is deleterious to our clients, the appraisal profession, and the public

Hold paramount the confidential nature of the appraiser/consultant - client relationship

and

Comply with the requirements of the Uniform Standards of Professional Appraisal Practice
and the
Code of Professional Ethics of the National Society of Real Estate Appraisers