Absorption rate

The rate at which properties listed for sale or lease are expected to be sold or leased in a given area over a specified time period


Changes made to the list or sale price of comparable properties when using the market property valuation method. These adjustments are used to bring the comparable properties into equivalency with the property in question


The process of estimating the current market value of a property


A professional providing an estimate of the fair market value of a real estate property


The property used by the appraiser to compare the subject property with

Cost approach

One of the methods commonly used to value commercial or residential real estate. The cost approach looks at how much the property would cost to rebuild from scratch

Income approach

Another popular method to value a property; only used if a property is expected to produce income


A situation when a property becomes no longer desirable because more desirable alternatives are available

Sales comparison approach

Property valuation approach, which involves finding comparable properties and making adjustments to come up with a value for the subject property

Subject property

The property that is being appraised

Final Word

In addition to identifying diamonds in the rough, learning how to invest in commercial real estate requires finding appropriate business financing. With online lender marketplaces like Lendio, you can benefit from access to countless financial loan programs from dozens of lenders. As such, you will be able to choose the product best suited for your commercial real estate investment needs in terms of rate, loan size, and more.

Frequently Asked Questions (FAQ)

Why does commercial property valuation matter?

Commercial property valuation can provide investors with important information necessary to decide on the purchase or sale of a real estate property.

If you want to learn how to buy commercial real estate, an accurate valuation will help you find a reasonably priced property and avoid overpaying for an asset. Likewise, sellers use valuation to set an appropriate price for their properties to ensure the timely sale of the property while maximizing their returns from the sale.

Which approach is right for me?
There is no single property valuation approach that works best in all situations. Depending on the circumstances, some of these methods may work better. Plus, many professional investors and appraisers use multiple approaches simultaneously to come up with the most accurate estimate possible.
How do you determine a commercial property’s estimated market value?
Several ways to evaluate a commercial real estate property include the market comparison approach, replacement cost approach, and income capitalization approach. Most professional appraisers and real estate investors use several methods simultaneously when estimating the value of a property.
What valuation approach is most commonly used for commercial property?
The income capitalization approach is most commonly used for valuing commercial properties, as you can apply it to any property that produces predictable, consistent income.
How do you calculate commercial property value based on rental income?
With the income capitalization approach, the property’s value is estimated through rental income and the property’s cap rate. The capitalization rate is determined based on the sales of similar properties in the same geographic area. The property value is then calculated as Net Operating Income (NOI) divided by the capitalization rate.

About the Author

Tetiana Sitiugina-Babiuk

Tetiana Sitiugina-Babiuk

Financial Sector Specialist and Content Strategist

Independent writer, content strategist, and financial sector specialist. Tatiana has an extensive experience in working with financial institutions such as Bank of Canada and Risk Management unit at FinDev Canada. She holds an MA in Financial Risk Management from the University of Toronto.

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