I would like to purchase commercial property from a business associate that consists of 3 units of leased office space. He had an appraisal of the property done in 2004 after he remodeled the building and the income approach value was 330k and the market value ended up being 380k. Right now NOI is about 22k per year and the building is fully leased. The property owner and I have agreed to buy and sell at whatever the property is worth, for this we agreed the price would be the appraised value. Because of what we know the property appraised for in 2004 we assume the property would be in the $400k range just because of appreciation.

I have been in communication with two banks regarding financing and they only want to lend based on the cash flow of the building, and based on the 400k expected value the 20k NOI is very light to support that.

This brings me to my question, how should we value this property? I plan to order an appraisal but these are somewhat expensive and I have to make it so far in the bank process before this can happen.

Thank you for your input and replies.