Selling a property in the UK can be a complicated business; anyone who has ever been through the process themselves can tell you that. Even with estate agents and other professionals on your side, there are plenty of things that can go wrong, and the process can be complicated regardless.
Selling your house is bad enough, but selling a commercial property adds several layers of complexity to the process.
For one thing, commercial properties tend to be inherently more complicated than residential properties. Commercial properties come in a much greater variety of shapes and sizes, and some are very highly-specialised. Before you drive yourself crazy trying to navigate the commercial property selling process alone, read up on the process, so you know what to expect.
At every stage, there are professionals who can help you if you are finding it difficult, or even handle most of the process for you.
How To Value A Commercial Property
There is no single method for valuing commercial properties that is applicable across the broad. Instead, there are several different techniques that can be used. Professional property appraisers will choose the most appropriate approach or mix and match a combination of approaches to arrive at the most accurate evaluation.
Whether you want to know how to value a freehold commercial property or a leasehold, these are the approaches usually used.
The simplest option, and the one that seems most intuitive to many people, is the cost-based approach. This method simply takes the costs of buying the land and adds them to the cost of buying the commercial property that sits on the land. This method of valuing a commercial property treats them essentially the same as residential properties. However, the method overlooks one of the most important properties of a commercial property, i.e., the fact that commercial properties make money.
This is why many appraisers prefer the income approach. This approach values the commercial property according to the amount of annual revenue that it is expected to generate, combining this number with the property’s cap rate. The cap rate is calculated by taking the annual income and dividing it by the current value of the property. This gives a final valuation that is equal to the net operating income divided by the aforementioned cap rate.
Once the cap rate has been calculated, it can then be adjusted to account for the specific features of your property. For example, properties that offer specific advantages or disadvantages to future buyers can have their cap rate adjusted up or down as necessary. However, these adjustments should rarely exceed half a percentage point of the property’s total value.
Looking at what other similar properties on the market are selling for is another popular means of establishing the value for a commercial property. It makes sense to use this method, as it will give you an idea of how much money you can expect to make from your own sale. Of course, there may be other factors in play, which mean your property is worth more or less than similar properties in the same area.
If you want to know how roughly how much you can expect from the sale of your property, then looking at the sales of similar local properties is a good place to start. However, this method is best for getting a ballpark figure; it isn’t so good for establishing an exact price. With commercial properties, there are likely to be more differences between properties in the same area than with residential properties, which tend to be very similar in price.
Gross Rent Multiplier
This method of valuation is similar to the income approach but, instead of looking at the amount of income that the property generates, it is based on annual gross rents. This figure is multiplied by the gross rent multiplier, which is calculated on the basis of the known value of similar properties in the area. The gross rent multiplier will always be a figure that is greater than 1. On the other hand, the cap rate is always less than 1. The cap rate factors in expenses, whereas the gross rent multiplier ignores these.
Value Per Door
For commercial properties that contain multiple sub-properties within, the value per door is calculated by working out how much of the total revenue each ‘door’ within the property contributes. This is commonly used to value apartment buildings and blocks of flats where the value to a buyer is from the rent generated by each unit.
How To Calculate Commercial Property Tax
There are a number of taxes that will be applied to any purchase of commercial property in the UK.
Exactly which taxes and how much will depend on where the property is located – England and Wales, Scotland, and Northern Ireland all differ in some aspects. We will cover stamp duty shortly, but there are a number of other taxes that need to be factored in.
For the seller of a commercial property, there are a number of potential fees and costs involved, but capital gains tax is the most important tax charge to know about. Capital gains tax is charged at either 10% or 20% – the rate you pay will depend on your overall income.
Some sellers might qualify for entrepreneurial relief, but this is relatively rare in the sale of commercial properties. The only cases in which this usually applies are those that relate when a vendor currently operating a business on the premises withdraws.
As well as taxation on the sale of the property, you will also have to factor in the ongoing tax costs you will incur from the revenue that the commercial property is earning. This is taxed like any other kind of income.
How Much Is Stamp Duty On A Commercial Property?
The purchase of commercial property in the UK is subject to stamp duty in just the same way as residential property purchases are.
Non-residential assets whose value exceeds £150,000 are subjected to a Stamp Duty charge, and this must be paid regardless of whether the property is a freehold or a leasehold.
You can use an online commercial stamp duty calculator to work out what the stamp duty on the sale of your commercial property will look like for a buyer.
Can A Residential Real Estate Agent Sell Commercial Property?
Selling commercial and residential properties might seem like it should be more or less the same process, but there are actually some important differences between the two.
Understanding what makes these kinds of property transactions different from one another is the key to appreciating the differences between commercial and residential real estate agents. In reality, selling commercial and residential properties are vastly different challenges that require different skills.
An estate agent who is skilled and knowledgeable in one field won’t necessarily do well in the other.
However, it is worth noting that, while a commercial property estate agent requires more specialist knowledge and training, there is nothing to stop a residential estate agent from branching out into selling commercial properties. Unfortunately, the results can often be disastrous for everyone involved.
For example, there are now websites that enable estate agents to list properties and will even automatically calculate an appropriate price based on the value of other properties in the local area.
Selling commercial properties is much more complex than residential properties. There is simply more variety when it comes to commercial properties, and there are sub-types of commercial properties that require an even more specialised understanding due to their highly-unique nature.
When you are using commercial property agents, you should check to ensure that they are RICS regulated. This means that they will adhere to a set of strict rules when it comes to handling their clients’ money. These rules ensure that any money you give to the agents will be protected. In the unlikely situation that something were to happen to your money, you would be able to claim a full refund.
Selling a commercial property can be a very long-winded process. Depending on the current economic climate and the specifics of the commercial property in question, selling it might be incredibly easy, or it might be a long and difficult journey.
The best way of working out what to expect beforehand is to sell your property using a qualified and experienced commercial property estate agent like Greater London Properties.
Selling commercial property is different to selling residential property in a number of different ways. If you want to be sure of getting the right price and the best chance possible of finding the right buyer, then you should always work with a professional estate agent such as GLP, preferably one who has sold properties like yours in the past.
Remember, making mistakes in the selling process or trying to rush it can come back to bite you later in the form of fines or, worse still, legal action. Having a qualified and RICS-compliant estate agent like us on your side will ensure that your time and your money are both protected throughout the process.