How Do You Determine Commercial Real Estate Value?

Here's a great blog post by fellow KW Agent, Link LeGrand in San Antonio.  He gives his insight on cap rates and how some determine commercial real estate value.
___ mc

I read an informative article written in a KW Commercial online forum this week discussing “Cap Rates”.  The forum where this article was posted encourages comments from other KW Commercial Brokers.  My opinion is that we all gain more truth in our perspectives by engaging regularly in these types of conversations/discussions with other seasoned brokers from other parts the country.  A foolish man or woman is one who thinks that he/she knows it all.  Only through learning from others can we increase our wisdom.  Real truth lies somewhere in the middle of multiple opinions.  Several KW Commercial brokers from different markets provided excellent feedback in the discussion forum of this article regarding how they define “cap rates”…when determining commercial real estate value.  Some of the brokers felt that commercial real estate value, as defined by cap rates, should be based on future income.  Others felt like commercial real estate value should be defined based on current income.  A few other brokers felt like commercial real estate value should be based on the past income through a historical perspective.  Before we jump into how I prefer to define commercial real estate value (please understand that every deal is different) relating to cap rates, let’s discuss “what a cap rate is” and cover the formula used to determine capitalization rate (commonly referred to as “Cap Rate”).
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