Business owners looking to get an appraisal need to understand the value of real estate and how it affects that assessment. Simply put, a low property value will drive down the worth of a business and its assets. Understanding why is a crucial first step to getting the kind of business appraisal you deserve.
The Value of Real Estate Is Just Part of a Business
There are a variety of ways to define real estate value. For example, the land that makes up the property is a major part of its value. However, all fixed, immovable, or permanently attached buildings are also considered a crucial influence on that worth. A look at the following items is necessary when valuing a piece of real estate.
- Buildings on the property
- The cost of those buildings
- Storage centers for a business
- Fences for privacy
- Trees and shrubs
- Sewers and other utility systems
- Various other rights (including air rights, mineral rights, and surface rights)
When assessing these items, the value of a property depends on how these things affect the price of the real estate. A commercial building without significant pollution will be worth more than one with pollution problems. Privacy fences are another major value boost, as are mineral rights. The latter is especially crucial for certain types of businesses.
How Is the Value of Real Estate Decided?
Now that you understand the various items that affect the value of real estate, it is important to understand other factors that can influence this worth. Demand for property is one of the major factors in deciding its value. If there is a weak demand in the area for a piece of real estate set up with a pizzeria, for example, the property’s cost will be appropriately decreased.
The utility of the building is another major factor, particularly in how it can attract the interest of a potential buyer. This aspect is an indication of how well that piece of property meets the needs of someone who have an interest in buying it. Sticking with the pizzeria example, someone who doesn’t want to purchase a pizza oven may be willing to pay more for a property that already has one installed.
The scarcity of property is also an important factor in determining real estate value. Think of a highly-populated area like New York City to understand this aspect. Property values for small business fronts are incredibly high. However, in a less populated rural area, the same company may cost much less to purchase. In terms of valuation, this cost will influence your business value in several ways.
Business Value Complex
Before diving into the ways that the value of real estate impacts your business worth, let’s take a look at the many variables that influence market cost. These items are very diverse and include both tangible and intangible things. For example, real estate is a piece of physical property that affects the value of a business. Other real items include machines used by the firm, business supplies, vehicles used to serve the business and more.
Intangible items are harder to define and value. These items include employees, the loyalty of the customer base, goodwill generated in the community, customer lists, the skills of managers, successes in the past and the outlook for the future. These items take an experienced appraiser to understand and implement when deciding on a business value.
How the Value of Real Estate Plays into Business Value
When is a business valuation necessary and how does real estate play into this process? That depends on a variety of variables, including:
- Earning revenue from producing goods or providing services
- Performing an economic activity on a piece of real estate
- The use of machines and employees crucial to business success
- Intangible assets, such as patents and trademarks
- Large bits of tangible assets available which are free for transfer
Real estate plays into this equation as the most significant piece of tangible property that defines a business. While a business has many pieces of physical equipment, real estate is usually the most costly and prone to changes in the market.
A company may experience a loss in value if the appraisal process uncovers pollution and other damage. While the loss in value shouldn’t be too severe or extreme, it is one that can be troubling to many business owners. That said, the effects of negative real estate value on a business can be devastating if owners don’t take this crucial aspect into consideration.
Are you looking for business valuation that can help your small business grow? The Global Valuation team can help you get the facts you need. Just visit us online or call (772) 215-5738 for more information. We will work hard to ensure your business succeeds where so many others have failed.