Valuation Techniques for Industrial Properties

As part of the ongoing growth and development of our business I (Shannon) decided to return to school to pursue my Post Graduate Certificate of Valuation at UBC.  We feel this additional knowledge will be an extra added value in choosing to work with us as we are creating educational pieces to provide to our clients on property valuation.  In Canada, industry contributes to a significant portion of the overall gross national product and wealth of our country.

I thought many investors and business owners would find this information very valuable and simply put, without real estate being utilized in these types of operations the business would not be possible.

There are 3 methods of appraising a subject property: cost approach, direct comparison approach and the income approach.

The cost approach attempts to replicate the thinking of buyers in the marketplace by evaluating an investment alternative, that of constructing a new facility. This is most reliable when evaluating new buildings in a stable, balanced marketplace.

The direct comparison approach attempts to measure the thinking of participants by evaluating the results of the actions by looking at completed transactions of similar buildings.  When no truly comparable property data is available, the data analyzed can still produce supportable results once adjustments are made. Overall, this is considered the best approach for the value of a property in the marketplace.

The income approach is useful for looking at market value and usually is the lower end of the market value due to special features in the property, which are hard to evaluate in an income analysis. The income approach will evaluate the building size, lot size, gross income and net operating income to determine the value of the building.

When the appraiser does the appraisal for your industrial property there is a lot of financial information that is considered, as well as depreciation elements and location of your property.  They will decide which method works best for your needs to determine the final reconciliation value. Good luck!

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