Small-Market Valuations Appraisers Dig to Determine Value

The demand for high-quality commercial real estate in primary and many secondary markets has been gaining strength during the past 12 to 18 months. As the availability of good product in primary markets has diminished, some potential buyers are considering alternatives in smaller secondary and even some tertiary markets.
While major investors will not consider these areas, there are outside investors that want higher returns and understand the risks of buying in these smaller markets. Valuing real estate becomes more difficult in secondary and tertiary markets where the lack of recent, arm’s-length comparable data is a major hurdle. Other concerns in small markets are population, job, and income growth over the holding period. The lack of barriers to entry is often an issue based on the availability and relatively low cost of land.
Finally, the sophistication and motivations of buyers and owners in small secondary and tertiary markets can lead to varying sales prices. As a result of these factors, valuing complex properties in primary or large secondary markets is often easier than valuing simple properties in smaller markets, mainly because of the availability of market data, which includes more-consistent sales and rent comparables and investor expectations. (CCIM by John Scott, Jr.)  Full Story