CoStar’s lease accounting software helps companies evaluate the ASC 842 lease classification tests for fair market value by providing them with supporting information from CoStar’s commercial real estate market data. CoStar provides market-leading research on commercial real estate properties in nearly all markets and sub-markets, and it’s updated continuously to reflect the current market conditions. This market data supports companies’ ability to compare market rents and estimated property values in minutes rather than days.
To obtain the support for FMV of their properties, companies typically go through a time-consuming process like this: The accounting department requests the FMV from the real estate department, which requests it from a real estate broker, who then uses CoStar information to derive the FMV and sends it to the real estate department, which forwards the information to the accounting department.
That process is becoming obsolete as best practice is to implement a lease accounting solution that readily provides real estate information to derive fair market value. CoStar is the only lease accounting software that provides this capability.
FMV can be determined using one the following three ways:
- The Market Value Approach: Obtain comparable sales records for nearby properties of similar use and size.
- The Replacement Cost Approach: Estimate the price to rebuild the property at the location, while accounting for depreciation on the current building.
- The Income Approach: Determine what the property could be leased for based on an acceptable and realistic rate of income.
The easiest approach, and the one most often used for ASC 842, is the income approach. When the FMV data is part of a company’s lease accounting solution, the most recent FMV can be discovered in an instant.
For each company’s portfolio, CoStar’s lease accounting software provides the leasing data of other tenants located in the same buildings or retail centers. The data includes the current estimated cost lessees are paying, the square footage of the properties, the dates they were first leased, the tenants that lease them, and vacancies. Often, the data also provides asking prices of available spaces and average sale prices and average rental rates for properties in the market. All of this information can be valuable for determining the FMV of your property.