How Real Estate Surveys Affect Capitalization Rates?

Real estate transactions are tracked in the marketplace in order to determine what the trends are in certain regions. Appraisers use sales transactions as a source for completing the sales comparison approach for a client’s appraisal report. When the income approach to valuation is utilized as a method for an appraiser’s opinion of value; the net operating income and capitalization rate are important factors. Income producing properties vary in value based on location since the apartment rental rate in an urban region versus a rural neighborhood will be quite different based on the markets they reside in.

Property owners of all types in different areas of the U.S. utilize research reports, surveys, and multiple-listing services to get an understanding of the real estate market. The issue that may arise is that lower populated areas with large commercial properties are not accurately reflected in national surveyed capitalization rates. When an appraiser is hired by a client to complete appraisal for a tax abatement, it is imperative that national real estate surveys are not the only source for deriving the capitalization rate. Local market transactions are quite relevant in capitalization rate calculation as it adds accuracy to calculation since it avoids urban region bias.col

The volume of commercial real estate transactions that occurs in the market is essential in assisting investors where the trends of value are, and property types to acquire for their portfolio. Having capitalization rates that accurately reflect large and small markets is vital in determining the most precise fair market value. Although real estate research is an ongoing process for the firms conducting the research and the companies utilizing the research; nothing will ever replace having an understanding of the rural markets where the rents and market transactions can be very different.

Allobar Strategies, a property tax consulting firm has ability to assist tax payers with issues with their tax assessment and how to file a tax abatement. Explaining capitalization rates in an effective manner to potential clients is another way to assist clients with understanding the fair market value of their property.

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