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I watched an investor lose a $3.2 million industrial building in Etobicoke last fall because he thought he was being smart by lowballing. His offer came in at $2.85 million—seemed reasonable based on some comparables he'd pulled online. The property sold three days later for $3.4 million to someone who actually understood what they were looking at.
The difference? One buyer guessed. The other one knew.
After spending over fifteen years doing commercial property valuations across Toronto and the GTA, I can tell you that the biggest mistakes happen right at the offer stage. And it's not usually because investors are reckless—it's because they're making decisions with incomplete information, thinking they're being cautious when they're actually just flying blind.
The Real Cost of Guessing Your Offer Price
Let me paint you a picture of how this typically plays out. You find a retail plaza in North York or a mixed-use building in Leslieville. The listing says $2.5 million. You look at what similar properties sold for, maybe knock off 10% because that's what your buddy did on his last deal, and submit your offer at $2.25 million.
Sounds logical, right?
Except you have no idea if the property is actually worth $2.8 million and you just snagged a deal, or if it's worth $2.1 million and you're about to overpay by $150,000. You're essentially throwing darts blindfolded and hoping you hit somewhere near the bullseye.
Here's what actually happens in most of these situations: sellers in Toronto's commercial market price their properties based on what they want to get, not necessarily what the market will bear. Sometimes they're spot-on. Sometimes they're dreaming. And occasionally—more often than you'd think—they've actually underpriced because they don't fully understand their own property's potential.
The only way to know which scenario you're in is to get a proper commercial property valuation before you write that offer.
Why Commercial Valuations Are Different (and Why It Matters)
I need to be straight with you about something: commercial property valuation in Toronto isn't like getting your house appraised. It's exponentially more complex, and the stakes are about ten times higher.
With residential properties, you're mostly looking at comparable sales and some basic adjustments. With commercial? You're analyzing income streams, lease terms, tenant quality, operating expenses, capitalization rates that shift by neighborhood and property type, potential for rent increases, zoning opportunities, and about fifteen other variables that can swing the value by hundreds of thousands of dollars.
I valued a three-unit retail building on Queen Street East last year. On paper, it looked like a straightforward $1.8 million property based on cap rates in the area. But when we dug into the actual lease agreements, we discovered two of the three tenants had options to renew at below-market rates that were locked in for another five years. Suddenly, that $1.8 million property was really worth about $1.55 million because the income potential was constrained.
The investor who hired us for that valuation submitted an offer at $1.6 million and got the property. Another buyer who went in at $1.75 million without doing the homework ended up walking away during due diligence when their lawyer caught the lease issue. They wasted three weeks and about $8,000 in legal and inspection fees.
The Three Questions Your Valuation Should Answer Before You Offer
When I'm working with investors at Innovative Property Solutions, I always tell them a proper valuation should answer three critical questions before they even think about writing an offer:
First: What's the property actually generating versus what it could generate? This is huge in Toronto right now because we're in a market where a lot of commercial landlords haven't pushed rents in years. I see this constantly in older buildings where tenants have been in place for a decade or more. The current rent roll might show $180,000 in annual income, but market rents could support $240,000. That $60,000 difference in a 5% cap rate market? That's $1.2 million in value sitting on the table.
Second: What are the real operating costs, and where are they headed? Property taxes, insurance, utilities, maintenance—these aren't static numbers, and they can absolutely kill a deal if you don't factor them in accurately. I've seen insurance premiums on older commercial buildings in Toronto jump 40% in the past two years. If your pro forma is using outdated expense assumptions, your whole valuation is wrong, which means your offer is wrong.
Third: What's the exit strategy, and does the valuation support it? Are you buying for cash flow? For redevelopment potential? To hold for ten years or flip in three? A professional valuation takes your specific investment strategy into account. A property that's worth $2.5 million to someone planning to hold and collect rent might be worth $3 million to someone who's going to add density through a minor variance or rezoning. You need to know where your deal sits in that spectrum before you decide what to offer.
How to Actually Use a Valuation When Structuring Your Offer
Here's where most investors get it backwards. They order a valuation, get a number—let's say $2.3 million—and then offer exactly that or maybe 5% less to leave room for negotiation.
That's not strategy. That's just math.
A proper valuation gives you a range and helps you understand where the leverage points are in the negotiation. Maybe the property is worth $2.3 million if the tenant in unit 2 renews their lease, but only $2.1 million if they don't. That's information you can use. You can structure an offer at $2.15 million with conditions tied to lease renewals, or you can offer closer to $2.3 million if you're confident in your relationship-building abilities with that tenant.
I've also seen valuations reveal opportunities for creative offer structures. One client was looking at a small office building in Scarborough where the value was being dragged down by deferred maintenance—about $120,000 worth of roof and HVAC work that was scaring off other buyers. The valuation clarified that the building was worth $1.9 million as-is, but $2.2 million after repairs. He offered $1.85 million, closed quickly because the seller was motivated, put in the $120,000, and had $180,000 in instant equity. He never would have had the confidence to structure that offer without understanding the numbers first.
The Timing Question Everyone Asks
"When should I actually order the valuation?"
I get this question constantly, and my answer surprises people: before you even view the property, if possible. At minimum, before you submit an offer.
Yes, you'll spend $2,500 to $5,000 upfront depending on the complexity of the property. And yes, if you don't end up buying it, that money is gone. But compare that to the alternative: making an offer based on guesswork, potentially overpaying by six figures, or missing out on a genuinely good deal because you came in too low and insulted the seller.
The investors I work with who consistently do well in Toronto's commercial market—the ones who've built serious portfolios over the past decade—all have the same approach. They treat valuation costs as insurance against making expensive mistakes. They'd rather spend $3,000 and walk away from a bad deal than save $3,000 and stumble into a problem that costs them $200,000.
One Last Thing
Commercial real estate in Toronto and the GTA is not a market where you can afford to guess. The competition is too sophisticated, the properties are too expensive, and the consequences of getting it wrong are too severe.
I've seen investors make incredible returns by doing their homework properly, and I've seen others lose their shirts because they treated a $2 million decision like buying a used car. The difference almost always comes down to whether they understood what they were actually buying before they committed to a price.
If you're serious about acquiring commercial property in this market, get a professional commercial property valuation done before you write that offer. Talk to firms like Innovative Property Solutions or other qualified appraisers who work in the commercial space daily. Understand the numbers. Build your offer strategy around facts, not assumptions.
Your bank account will thank you, probably to the tune of several hundred thousand dollars.