An Argument for Establishing a Standard Method of Capitalization Derivation (Report‪)‬

ABSTRACT A capitalization rate may be extracted from any sale of income-producing real estate for which the selling price and the net income are known. The accuracy of the capitalization rate calculation depends on the accuracy of the information used to derive the net income. Incomplete information produces inaccurate capitalization rates. The quality of the pool of information used by appraisers, lenders, brokers, and investors suffers from inaccurate data, The purpose of this article is to advocate for a standard method of capitalization rate derivation, as well as for the Appraisal Institute to serve as the agent to promote a standard method.