Income Producing Properties
Providing an appraisal in eminent domain for the value of a property that produces an income is different from a residence. The value of the property is not only linked to how much the property would sell for on the market, but it also takes into account the amount of income that would be lost if the owner no longer has the property.
This method of appraisal is important for properties that make an income from rents or leases, such as an apartment building or commercial space with stores or offices leasing space. The net operating income of the property may be used in the capitalization rate method. If the capitalization rate is high, the selling price may be lower.
Another option is the Gross Rent Multiplier or GRM. It takes the gross rental income of the property without calculating expenses for the net operating income. Within this method, there are two options. With the first, Gross Potential Income considers all possible rents that may be collected. Gross Operating Income includes only the actual income being made, which allows for vacancy and non-payment.
Loss of income is only a portion of the value of an income-producing property. The appraiser must still show the market value of the property if it were to be sold. They must also consider any expenses that are incurred because of the property being condemned. In determining the market value, the property would be compared to other similar properties within the area.
If only part of a property is taken in eminent domain, the value of that portion would be considered. However, any damages incurred on the rest of the property because of the taking would also be included.
A forensic appraisal is often requested by the property owner’s attorney to provide a reasonable value to the property being taken. They also review the appraisal report requested by the condemning authority and note any differences while defending their findings. This process allows the property owner to request a higher payment for their property than what the condemning authority offered in the beginning.
To increase the amount of compensation paid to a property owner in eminent domain, an expert must be able to show the actual value. A forensic appraisal review is an important part of the process to ensure the property owner is compensated with the maximum amount for the loss of their property.