The Changing Landscape of CRE Valuations

Blog Post, By FUEL Enterprises

It’s no secret how important valuations are to the commercial real estate industry. After all, estimating the value of commercial real estate is crucial for a number of things, including securing financing, property listing, investment analysis, property insurance, taxes, and more. But, undoubtedly, to most people the most practical use of commercial real estate valuation is to determine the asking price or the purchase price of a piece of commercial real estate.

Traditionally, you’d assign a valuation to a property in one of two ways: you could either do it yourself using complicated formulas on pen and paper, or you could hire an outside company to do it for you. However, a third option—sort of a hybrid of the two, really—has begun to emerge, giving CRE professionals an exciting new way to price real estate: technology-based valuation.

Let’s take a closer look at these options, as well as the pros and cons of each.

  1. Determining the valuation yourself using pen and paper

Note: You can use several different approaches to assign a valuation to a piece of property: the sales comparison approach, the capital asset pricing model, the income approach, and the cost approach. While some of these models are clearly more simple than others to figure and calculate, the pros and cons are similar for all of them.

Pros:

  • As with most “do it yourself” options, determining a valuation yourself is affordable and can save money.
  • You can do it yourself, meaning that you are in control of all of your data and don’t need to hire an outside advisor.

Cons:

  • The math required for the calculations can be complicated.
  • Doing calculations by hand creates a significant risk of user error.
  1. Hiring an outside company to determine the valuation for you

If you don’t want to be bothered with doing the calculations yourself, you can always choose to hire an outside company to assign a valuation to your property.

Pros:

  • Allowing someone else to determine a valuation takes one thing off of your plate and out of your busy schedule.
  • Valuation experts provide reliable calculations that you can depend on.

Cons:

  • Hiring an outside firm can be expensive.
  • You are at the mercy of someone else’s schedule—you may wait days or even weeks to receive your valuation.
  1. Using technology to perform valuation

An exciting third option is emerging, in which you can use technology to formulate a valuation yourself. This option offers numerous benefits: you get reports instantly in seconds (rather than days, weeks, or sometimes even longer); you have access to your report whenever you need or want it; you have control of your own data; and more. Transparency with your clients is increased, as is the sophistication of the valuation reports.

Middle-market commercial real estate firms may have the most to gain from option three. Technology-based valuations bring sophistication to reporting, and transparency to the process, that allows firms of all sizes to compete on an equal playing field. FUEL Enterprises is changing the face of valuations and making it easier than ever before. Learn how FUEL can transform your underwriting. Contact us today.

September 14th, 2018|Blog|