looking up at a commercial building that's blue and yellow

A Commercial Property Appraisal is an Important Step in the Loan Approval Process

A commercial real estate appraisal is a calculated assessment conducted to determine the value of a commercial property. Commercial property appraisals are an integral part of the lending process because they help the lender gauge the risk of approving the loan. This assessment also ensures the lender doesn’t provide more financing than necessary, lowering liability.

Subsequently, commercial appraisals also help the borrower ensure they aren’t overpaying for a property.

What Does a Commercial Property Appraisal Cost?

Typically, a commercial property appraisal cost is in the thousands. It can range anywhere from $2,000 to $25,000, depending on the size and scope of the commercial project. The most common cost is approximately $4,000. Although the lender may order the appraisal, this cost is passed to the borrower.

The Differences Between Commercial Building Appraisals & Residential Appraisals

There are three major differences between commercial building appraisals and residential real estate appraisals.

  1. Cost

While commercial property appraisals typically cost thousands of dollars, residential appraisals cost hundreds. For instance, a single-family home appraisal report may cost $300 to $450, while an office building appraisal can cost $4,000 on average.

  1. Valuation Method 

Residential appraisals generally use a sales comparison approach when determining value. Commercial appraisers put more emphasis on the net operating income the property can potentially generate.

  1. Turnaround Time

Because a commercial property appraisal is more complex than a residential appraisal, it takes longer to complete the process. For instance, a commercial property appraisal may take up to a month, while a residential appraisal takes only a week.

4 Types of Appraisals for Commercial Property

  1. Income Approach

The income approach is the most popular type of appraisal for commercial property. The value is derived from the amount of income the property is projected to generate in the current market.

The calculation: 

Net Operating Income / Capitalization (Cap) Rate = Property Value

  1. Sales Comparison Approach

The sales comparison approach—also known as the market approach—is most commonly used for residential real estate rather than commercial. Value is determined by analyzing comparable property or similar property sale prices. Although a residential appraiser will likely have a plethora of comparable properties to choose from, a commercial appraiser may have to look outside of the market area, making the valuation less accurate.

  1. Gross Rent Multiplier Approach

Professional appraisal firms don’t typically use the gross rent multiplier approach. Individual investors may use this method to quickly determine value. To determine value, the individuals review similar properties and establish the average gross rent multiplier in that area.

The calculation: 

Gross Rent Multiplier x Annual Income = Property Value

  1. Cost Approach

Out of the four types of appraisals for commercial property, the cost approach is the least common. The value is determined by assessing the cost of reconstructing a property from scratch. It takes the costs of land, materials and labor into account.

The calculation:

Land Cost + Materials Cost + Labor Cost – Accumulated Depreciation = Property Value



Commercial real estate lender AVANA CUSO has more than 20 years of experience ordering and reviewing commercial appraisals.

Established in 1998 and headquartered in Simi Valley, CA, AVANA CUSO offers competitive and collaborative commercial real estate loans. We partner with credit unions and connect them to investors across the United States. Additionally, we uniquely support and guide our partners through the entire full lifecycle of the loans, including commercial appraisals. AVANA CUSO is a proud member of the AVANA Family of Companies.