How to Value Commercial Property
By Garrett Pierson, commercial real estate agent at Crest Realty, Ogden. Updated October 29, 2026.
To value commercial property, take the net operating income the building produces in a year and divide it by the cap rate buyers are paying for similar buildings nearby. That one line does most of the work. The rest of this page shows where each number comes from, the two other approaches appraisers use, and the mistakes that cost sellers and buyers the most money.
The quick version: value = NOI divided by cap rate
Net operating income (NOI) is the rent and other income a property collects in a year, minus the cost of running it. It doesn’t include your mortgage payment, income taxes, or depreciation.
Cap rate is the return a buyer accepts on that income. It comes from recent sales of similar buildings in the same market: each one’s NOI divided by its sale price.
| Line | Example |
|---|---|
| Gross rent collected | $180,000 |
| Vacancy and credit loss | ($9,000) |
| Other income (parking, CAM reimbursements) | $12,000 |
| Operating expenses (taxes, insurance, maintenance, management) | ($63,000) |
| NOI | $120,000 |
| Market cap rate | 7.0% |
| Indicated value | $1,714,286 |
Change the cap rate to 6.5% and the same building is worth $1,846,154. Change it to 7.5% and it’s $1,600,000. Half a point on the cap rate moves this property by more than $100,000 in each direction, so the cap rate you pick matters more than any formula.
If you want the math done for you, EstiMate is the commercial real estate calculator app I built. Enter any two of NOI, cap rate, or value and it solves for the third, and it carries your NOI into the DSCR and cash-on-cash calculators without retyping.
The three approaches appraisers use
1. Income approach
The method above. It is the main approach for any property bought for its income: office, retail, industrial, multifamily of five units or more, and single-tenant net lease buildings. A lender’s appraiser will usually also run a discounted cash flow for larger properties, which projects income over a holding period and discounts it back to today.
2. Sales comparison approach
Find recent sales of similar buildings and compare them per square foot, per unit, or per acre, then adjust for differences in condition, location, lease terms, and timing. This is the primary approach for land and for owner-user buildings with no lease income, and it is the check on the income approach for everything else.
3. Cost approach
Land value plus what it would cost to build the improvements today, minus depreciation. It fits new construction and special-purpose buildings such as churches, schools, or car washes, where there are few comparable sales and no typical lease.
An appraiser weighs the approaches based on the property. A stabilized retail center leans almost entirely on income. A vacant industrial building an owner will occupy leans on sales comparison. Raw land is sales comparison only.
Where sellers and buyers get the number wrong
- Pro forma income instead of actual income. Listings often show rent the building could collect after a renovation or a lease-up. Buyers pay for what it collects today and discount the rest.
- Missing expenses. Owner-managed buildings leave out management fees and reserves for replacement. An appraiser adds them back, which lowers NOI and the value.
- A cap rate from the wrong market. A national average for industrial tells you nothing about a 12,000 square foot flex building in Ogden. Use sales in the same county and the same property type within the last year or two.
- Ignoring the lease. Ten years left with a credit tenant and annual bumps is a different asset than a month-to-month tenant at the same rent. The NOI is the same, but the cap rate and the value are not.
- Confusing price per square foot with value. Price per foot is a comparison tool. A buyer is paying for the income.
What a broker opinion of value includes
Before you list, refinance, or make an offer, you want an opinion of value from someone who has walked buildings like yours and seen what they closed at. Mine covers:
- A review of your rent roll, leases, and 12 months of operating expenses, reconstructed the way an appraiser will see them.
- Recent sales and listings of comparable buildings in Weber, Davis, or Box Elder County, with the adjustments explained.
- A cap rate range for your property type and location, and a value range to match.
- A plain-English note on what would move the value up: lease extensions, expense cleanup, deferred maintenance worth fixing before listing.
Banks and credit unions hire me for market analysis and appraisal review, and I own commercial property myself, so you get the number a lender’s appraiser is likely to land on.
Related: 1031 exchange in Utah if you plan to sell and buy again, and commercial real estate in Ogden for what is on the market now.
Commercial Property Valuation Questions
Garrett Pierson is a commercial real estate agent at Crest Realty, 978 Chambers St #3, Ogden, UT 84403. He owns commercial property and founded EstiMate, a commercial real estate calculator app. See also the commercial real estate glossary.