Market Value

Market value is the most probable sale price for a property exposed to a normal, competitive market, with buyer and seller both acting knowledgeably and without pressure. For income property, the usual estimate is NOI divided by the market cap rate. The asking price is not market value until someone pays it.

The default house has $28,892 of NOI. At a 6.5% cap rate that implies about $444,500 of market value, some $55,500 below the $500,000 price. At a 5.78% cap rate, the one the price implies, the two figures match.

Small residential rentals also sell to owner-occupants, who do not price on NOI at all. That is why houses often trade above what the rent alone supports. Apartment buildings and commercial property, bought almost only by investors, follow NOI much more closely.