Valuation of income property, Capitalization
This article reviews basic concepts in extracting overall capitalization rates (OARs) from the market. The band-of-investment technique for determining OARs used a mortgage-equity analysis and will produce accurate results when properly supported and developed. However, a market-extracted OAR, obtained by dividing a single year’s net operating income (NOI) by the sale price, provides several advantages over band-of-investment OARs. OARs extracted from sales are more easily explained, understood, and defended. They are not difficult to develop, but the mass appraiser should be aware of several factors, discussed here, in order to assure reliable results.
Strickland, Terry L.
"Extracting overall capitalization rates from the market - a review of basic considerations,"
Assessment Journal: Vol. 6
, Article 1.
Available at: https://researchexchange.iaao.org/assessment_journal/vol6/iss5/1