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July 28, 2020
How to Value Commercial Real Estate in a Divorce Proceeding

Owning commercial property often means that you have an income stream from rent. That means that the real estate value often extends beyond the simple price tag that you could put on the real property. The income stream must also be considered part of putting a dollar value on commercial real estate.

You will often use a real estate expert in your divorce proceeding to help you value commercial property. That expert will usually appreciate the property by considering several factors.

Expert Valuation Factors

1. Income Stream
First, the expert will review how much money is coming in because of rent payments regularly. They will look at historical data and how much income is being generated.

Unfortunately, some parties will deliberately ask tenants to leave or act in such a way that forces them to go. That way, their income from the property is less. Historical information about the property is essential to help determine whether this type of action is taking place. The expert will often tell when this is happening and consider that when valuing the property.

It is important to note that this type of behavior can be considered a form of fraud. Courts certainly do not look favorably on actions that deliberately decrease the value of the community property being evaluated in a divorce proceeding.

2. Comparing Similar Rental Income
The expert will also review the income stream of comparable commercial properties in the area. This type of analysis is vital to determine whether the actual property owner is getting the fair rental value for the property.

In situations where one spouse also owns the company occupying the commercial building, this type of examination is significant.

3. Comparable Sales
The expert will also review comparable sales in the area, just like a real estate professional trying to sell a commercial or residential property. Similar sales will provide a reasonable estimate of the value, sometimes both with and without a rental income stream.

Other Valuation Methods
Instead of using an expert, you can use other valuation methods as well. The parties must agree upon these methods, and they may not make sense in every situation.

Agreed Upon Value
The parties can develop a number on their own for the value of the commercial property. If they can agree on a deal, they will not have to use expert opinions or evaluations. In most cases, the Court will not question an agreed-upon value that the parties develop themselves.

Refinanced Value
If the commercial property has recently been refinanced, the parties may want to use the value that the bank developed as part of the refinancing process. It would be best if you kept in mind, however, that this value is often conservative.

Commercial property valuation can be a considerable part of your divorce proceeding, and it should not be overlooked. Expert involvement is often necessary. Let Hartley Lames et al. help you get this process right—call today to set up a consultation.

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