What insight do existing lease agreements provide to an appraiser?

Existing lease agreements are critical for an appraiser as they provide valuable information regarding the current income potential of a property and its standing within the prevailing market conditions. These agreements detail the rental rates agreed upon, the duration of leases, and any terms that may influence revenue, such as options for renewal and escalation clauses.

By analyzing these leases, an appraiser can assess whether the income level aligns with or deviates from the market norm, helping to gauge the property's financial attractiveness. Additionally, they can discern trends in rental values over time, which aids in forecasting future income potential. This context is essential for arriving at a well-founded property valuation, reflective of its present economic environment.

Lease agreements do not primarily serve as indicators of historical value, outline legal obligations for the owner unrelated to income, or reflect the original purchase price of the property. Rather, their focus is on the current performance and potential of the property in a competitive marketplace.