Appraiser Location Analysis

Many investors and owners never take the time to really analyze a location. They consider the price of a parcel of land or the price per square foot of a retail or office building but many don’t take the time to draw a 1 mile radius around it and consider how many potential customers they have nearby or what their socio-economic status of the people who live there is.  That’s a recipe for disaster for businesses who must survive there.

In my neighborhood for example there is a huge area that is vacant, federally owned land, basically it’s a mountain that falls into the McCullough Range, and it’s like a black hole for business owners. The area where the mountain is takes up thousands of acres of land that would normally be developed with homes and apartment buildings but instead there is nothing.

If buyers would simply draw that 1 mile radius around the sites and buildings close by they would see that they have access to half, and likely less than half, of a normal population count. So you don’t have to ask yourself why there are so many business failures, but as fast as they fail there is always someone behind them who wants to rent or buy their property.

Appraisers recognize the strengths and weaknesses of vacant property locations for vacant and developed commercial buildings.  It’s not rocket science, if you look behind a property and you see a mountain peak and no development behind the property for a mile or two it should be a wake-up call,  like a slap in the face. You should ask yourself “where are all of the potential customers who will support the retail store or office building who should be located near the site or building?”

The answer of course is that if the development is not there the surrounding development likely does not support the planned or existing commercial property uses.  Site or building location can be “poor” when compared to other locations that have access to or are close to things like; multiple arterial roadways, mid-rise apartment complexes, downtown areas and / or other Strip developments in close proximity.

What throws many renters and investor buyers off is the fact that a property may front on an arterial roadway that runs through the area or the fact that someone has already invested in a site or constructed an expensive retail or office building.  If someone did that the value must be there, right?  I would say “not necessarily,” and ask myself why the building is vacant or why the site has remained vacant. 

If you just came across a location and you saw businesses, you may have assumed that the businesses were profitable and thus doing well.  Many tenants however suffer through their lease terms and regret that they made a poor decision with regard to a location.  Some survive their bad decision and move to a better location.

An appraiser would likely call the poor location of a building an external obsolescence but there could be other layout (functional) and physical building problems that negatively affect value.  Appraisers can’t always identify every problem, there are at times hidden defects, and that is why most appraisers note in their report that a building inspection is important and should be completed.  Appraisers are not building inspectors and most make that clear in their reports.

Properties for rent and for sale that remain on the market for extended period often have one or more problem.  They may have commercial zoning and planning but that “allowed” use doesn’t guarantee that the location, layout or the physical state of the building is viable.  It’s a good idea to have an appraiser take a hard look at a property that you become interested in.  You may not like what he has to say but if you buy the building and then you ask the appraiser to take a look you may be much less happy.

For more appraisal information contact Glenn J. Rigdon MA, MRICS, IFAS, ASA is a Las Vegas / Henderson Nevada based appraiser who can be contacted via email or via his business website known as Appraiser Las Vegas  (http://www.appraiserlasvegas.com), or http://www.horizonvillageappraisal.com, or you can also click on “Contact Us” on the home page of this website or visit my public profile at LinkedIn at http://www.linkedin.com/pub/glenn-rigdon-ma-mrics-asa/1a/30b/879/

Article source: http://www.appraisalarticles.com/General-Appraisal-Articles/4732-Appraiser-Location-Analysis.html