3 Ways to Evaluate Commercial Property
 Replacement Cost Method: As the title implies, this is the method of
evaluation that estimates the cost to reconstruct a replacement to the existing
structure. It takes into account the cost of materials, labor and the current
wear and tear (depreciation) on the current structure. This is very effective
for evaluating a newer structure that has constructed and has very little
depreciation.
Sales Comparison Method: This method is commonly referred to as the
"Market Approach" and is the method that analyzes prices paid for recent sales
of similar properties in normal market conditions. Adjustments are made to
valuations based on positive and negative characteristics of the similar
properties as compared to the subject property.
Income Capitalization Method: This method is the process of estimating
the value of a property by discounting the value of all future net income from
the property. This method is commonly used for property considered for
investment purposes. The 2 key variable sin this analysis are how accurately
one can predict the future net income by taking into consideration the
variables of rental rates, vacancy, taxes, related expenses etc. as well as the
current cost of capital of the investor.
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