In Search of the Rate

  • November 20, 1992
  • • Written by: James E. Gibbons, CRE 

Fall/Winter 1992, Vol 17, No 2

Abstract: The income approach is widely accepted as the most plausible methodology for valuing real property interests. It is founded on the proposition that value is the present worth of anticipated benefits of ownership. Valuation therefore has two major steps: (1) forecasting the benefits of future ownership, usually as cash flows; and (2) discounting these expectations to express their present value. A key element obviously is selection of the appropriate rate of discount. Over the years appraisers and analysts have diligently pursued a search for the right rate. It has become clear that the most dependable guides are yield data from capital markets.