Breaking down commercial real estate into units of comparison is essential to properly analyze commercial real estate. Due to the abundance of differences in commercial property, appraisers need a way to analyze market transactions and replicate investor motivations. We accomplish this through the use of various units of comparison. While some of the more exotic units of comparison can include per animal unit for ranchland, per hole for golf courses, and per linear foot for waterfront property, the most commonly used unit of comparison in appraisal practice is per square foot.
In the San Antonio market, the following units of comparison are generally utilized:
Land typically sells per square foot or per acre of land area, but it can also sell per front foot, per buildable unit, or per animal unit, to name a few. The proper unit of comparison for analysis is largely dependent on the highest and best use of the site. As noted above, land can sell on the front foot which is typically found in water front properties.
Retail, office, and industrial properties typically sell on the square foot of building area in the San Antonio area, but as noted in one of our pervious article, What does it all mean?, the method of measuring/determining the size of the property types can vary greatly. The unit of comparison may be the square foot of gross building area, useable building area, or rentable building area.
Apartment complexes are largely analyzed on the per unit basis as this is where their income is derived, but sometimes a per square foot unit of comparison is applicable.
Determining the appropriate unit of comparison is particularly crucial for special purpose properties. Units of comparison for special use properties range from per lane for bowling alleys, to per boat slip for marinas, and per seat for theaters. Typically, the unit of comparison for special use properties is a derivative of where the property’s income is derived, but not always.
In general, real estate appraisers utilize the unit of comparisons most often utilized by market participants. Interviews with investors, brokers, and other market participants can help to narrow down the appropriate unit of comparison. Utilizing this unit of comparison aids the appraiser in analyzing market transactions and replicating buyer and seller motivations. Assuming the appraiser utilized proper appraisal analysis and techniques, the use of one unit of comparison over another will not impact the value conclusions in the assignment. If you are in need of any real estate appraisal services or consulting, call us today and let Meridia Appraisal Group exceed your expectations.