The term cap rate can seem confusing; however, it’s a simple concept. Short for capitalization rate, cap rate is a valuable tool in estimating the sales prices of commercial properties.
Commercial practitioners assist their clients by developing competitive market analyses or broker price opinions to determine a reasonable sales price estimate for any particular property, just like residential practitioners do for homes. The income approach using capitalization of income is one of the three traditional methods to determine the estimated sales price of commercial property, the other two approaches being comparable sales and replacement cost.
Learn more about cap rate and how it’s used in the January/February issue of the Texas REALTOR® magazine.
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