Valuing Real Estate

November 21, 2024

by a searcher from Princeton University in Livingston, NJ 07039, USA

Does anyone have any good tips on how to value real estate? Sellers do not always have an appraisal and I am not sure how much I would trust it anyway. Also I do not want to get a commercial broker all spun up when I am still pre-LOI. I have been going to the town tax records for the assessment but would love other ideas. Or is there language in an LOI like with working capital where we will just deal with this in due diligence?

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Reply by a lender
in Falmouth, MA, USA

The income approach can give you a solid sense of the value. Start by checking comparable rent prices per square foot in the area. From there, build a projected NOI table, factoring in expenses and estimated vacancy. Once you have that, look up the cap rates, and you’ll land on a credible range. Does that approach make sense? Let me know if there’s anything you’d like me to clarify or dig into further—I’m here to help.

Reply by an intermediary
from Rutgers in Cherry Hill, NJ, USA

Income approach based on the calculated NOI and cap rate is best considering you are buying the business inside. Comps should be used to make sure you are in the right ball park. Make sure you this business is cash flowing well enough to pay the debt and profit from the property too. Finally, it couldn't hurt to protect against a mistaken value with a clause that states the property must appraise at or above the price agreed.

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