Market Cap Rate: How to Find the Cap Rate for Your Property

The market cap rate is the cap rate that similar properties in the same area are trading at right now. It comes from recent sales, not from the property you are looking at. Divide your property’s NOI by the market cap rate and you get an estimate of its value, which is how appraisers use the income approach and how most buyers set an offer.

Market cap rate vs your property’s cap rate

Your property’s cap rate is its NOI divided by its price. The market cap rate is the same calculation done on other properties that already sold. If the two are far apart, either the property is mispriced or it is different from the comparables in a way that matters: age, condition, tenant quality, location within the market.

Finding the market cap rate from comparable sales

Collect recent sales of similar properties, ideally within the last six to twelve months. For each one, get the sale price and a realistic NOI. The NOI is the hard part. Listing sheets and sale records often show the price but not the income, and a seller’s NOI may leave out expenses. Rebuild each one with the same expense assumptions you use for your own deal.

Here is a three-comp example for the standard $500,000 house:

Comparable	Sale price	Rebuilt NOI	Cap rate
Comp A	$620,000	$37,000	5.97%
Comp B	$430,000	$25,500	5.93%
Comp C	$560,000	$33,000	5.89%
Average			5.93%

At a 5.93% market cap rate, the subject house’s $28,892 of NOI supports a value of about $487,200. The asking price of $500,000 is a 5.78% cap rate, a little rich for this market. That gap, about $12,800, is a negotiating point.

Other sources of market cap rates

Broker surveys. Large commercial brokerages publish cap rate surveys by property type and market, usually twice a year. They are good for direction and for commercial property, but they describe institutional deals and rarely cover single-family rentals or small multifamily.

Appraisals. An appraiser’s income approach states the cap rate used and the sales behind it. If you have a recent appraisal on a similar property, it is a ready-made set of comps.

Local brokers. Commercial brokers who sell your property type in your area know the current range. Ask what recent deals traded at and how the NOI was calculated.

Public data. Some counties publish sale prices, and rent data can come from listings. Put the two together and you can estimate cap rates yourself, with the caveat that your expense assumptions drive the answer.

Why the market cap rate moves

Market cap rates rise and fall with borrowing costs, the amount of money chasing deals, and expectations for rent growth. The cap rate and interest rate guide covers the link to debt. A market cap rate is only current for as long as those conditions hold, so refresh comps that are more than a year old.

Using the market cap rate

Value = NOI / market cap rate. The cap rate valuation guide works through the full method, including how to adjust for a property that is better or worse than the comps. The calculator has a market cap rate field that turns your NOI into a value directly.