Commercial Appraisal Income Approach Calculators

Commercial Real Estate Appraisers depend on the Income Approach to value in the analysis of income producing properties. This differs from owner-user type property appraisal where the Commercial Appraiser might lend greater weight to the sales comparison approach as the lead value indicator. With income producing properties investors are looking for financial return for their investments.

Thus the Income Approach assumes there is a relationship between a property’s current market value, the expected net cash flow and the relative risk associated with that cash flow. The primary tool that commercial real estate appraisers rely on in the Income Approach is  Direct Capitalization, where value is estimated by deducting all applicable expenses from anticipated gross income. The commercial appraiser the arrives at the projected net income for the property. This amount is then capitalized at a rate which is commensurate with the risk inherent in the ownership of the property.

The following tools simulate the process that the commercial appraiser utilizes in the Income Approach to value. These tools are intended to assist the user in further understanding the relationship between income and value. The results of their use are not to be interpreted as an appraisal and the user specifically agrees to the Terms of Use of this site.

Apartment Building Appraisal – Direct Capitalization Analysis

In the Apartment Building Appraisal Tool, the user is asked to input the total units, the market rents per unit per month, the applicable expenses for the subject property and to select an appropriate cap rate for the property in question. Expenses are deducted from the adjusted gross income after vacancy, and the resulting net operating income is divided by the cap rate in order to determine value for the property.

Office Building Appraisal – Direct Capitalization Analysis

In the Office Building Appraisal Tool, the user inputs the square footage of the building, the market rents per square foot per month, the expenses applicable to the property and to select an appropriate cap rate. Expenses are deducted from the adjusted gross income after vacancy, and, like the apartment appraisal tool, the resulting net operating income is divided by the cap rate in order to determine value for the property.

Retail Building Appraisal – Direct Capitalization Analysis

In the Retail Building Appraisal Tool, the user inputs the square footage of the building and market rents per square foot per month. The tool assumes that expenses are fully, or nearly fully reimbursed.  The user is asked to select an appropriate cap rate. unreimbursed expenses are deducted from the adjusted gross income after vacancy, and, like the tools above, the resulting net operating income is divided by the cap rate in order to determine value for the property.