To find out what your commercial property is worth, work it out two ways and compare them: divide the building's net operating income by a market cap rate for similar buildings, and multiply its size by the price per square foot that similar buildings nearby recently sold for. If the two agree, you have a working number to decide with. For a loan, a court, an estate or a tax matter, you will need an appraisal from a licensed appraiser instead.
Written by the Titleman team with AI assistance (Claude). Reviewed by Titleman's SEO/GEO review desk (AI-assisted, not independent of Titleman) before it went live. Links checked and page updated 14 October 2026.
This page is for owners deciding whether to sell, refinance or hold. It explains the arithmetic; it is not an appraisal of any property.
Three ways buyers and appraisers value a building
Commercial buildings are valued from what they earn, what similar buildings sold for, and what they would cost to build again.
| Approach | The question it answers | When it carries most weight |
|---|---|---|
| Income | what is the income worth to a buyer? | leased investment property |
| Sales comparison | what did similar buildings sell for? | any type with enough recent sales |
| Cost | what would it cost to build again, less wear? | new or special-purpose buildings |
The income approach turns net operating income into a value with a cap rate (income approach). Sales comparison uses comparable sales adjusted for the differences that matter. The cost approach matters most where there are few sales and little income to measure.
Your own numbers first
Start with what only you hold: the leases and the operating statements. A buyer values the income, so the first number to get right is the NOI.
- Rent from the leases, tenant by tenant, with each lease's end date.
- A vacancy and credit allowance, even if the building is full today.
- The expenses you pay and do not recover from tenants: management, reserves, any costs your leases do not pass through.
- NOI is what is left. See how to read a rent roll and what a T-12 is.
A worked example (illustrative figures)
None of these figures describes a real property or a real market. They show the arithmetic, and every number follows from the ones before it.
An owner holds a 12,000 square foot retail building with three tenants on net leases at 24 dollars per square foot a year.
| Line | Amount (dollars) |
|---|---|
| Rent: 12,000 sq ft × 24 | 288,000 |
| less vacancy and credit loss, 5% | 14,400 |
| Effective gross income | 273,600 |
| less management, 3% of income | 8,208 |
| less reserves, 0.25 per sq ft | 3,000 |
| Net operating income | 262,392 |
Income approach. At a 6.75 percent cap rate the building is worth about 3.89 million dollars; at 7.25 percent about 3.62 million.
Sales comparison. Three closed sales of similar buildings nearby sold at 300, 335 and 318 dollars per square foot. Adjusted for size and age (+4, −5 and 0 percent), they come to 312, 318 and 318, an average of about 316 dollars per square foot, or about 3.79 million.
Reconciled. Both approaches land around 3.6 to 3.9 million, and the sales sit at 3.74 to 3.82 million. A working opinion is about 3.75 to 3.85 million.
What one lease does to the price. Suppose the tenant on 5,000 square feet leaves in a year. A buyer would count about 12 months of lost rent (120,000), tenant improvements for the next tenant at 20 dollars a square foot (100,000) and leasing commissions of 6 percent on a five-year lease (36,000): about 256,000 dollars, and the price drops by about that much, to about 3.54 million. That is why a lease renewal signed before a sale shows up in the price.
Which kind of value you need
The right kind of valuation depends on what the number is for.
- Deciding whether and at what price to sell: a broker opinion of value, or several. See what a broker opinion of value is.
- Refinancing: the lender orders its own appraisal or evaluation; the agencies' Appraisal and Evaluation Guidelines describe what each must contain.
- Courts, estates, gifts, tax matters: an appraisal from a licensed appraiser.
- An online estimate cannot see your leases, so treat it as a starting point at most for a commercial building.
Where Titleman fits
Titleman's Value Opinion lays out both approaches for an address: the competitive set, the income and the inputs, in a report and, on about half of runs, a workbook (62 of 113 finished runs in the 30 days to 12 October 2026). The numbers and methods sit in the workbook, and the price you decide on is yours. Attach your rent roll and operating statements and the income is built from your numbers, not market guesses. The median run takes 48 minutes and the 90th percentile 104. For a quicker price on one address or a list, there is the BOV. Neither is an appraisal.
FAQ
How do I find out what my commercial property is worth?
Work it out two ways and compare. Divide the building's net operating income by a market cap rate for similar buildings, and multiply its size by the price per square foot that similar buildings nearby recently sold for. If the two agree, you have a working number. For a decision with legal or lending weight, order an appraisal from a licensed appraiser.
Do I need an appraisal or is a broker's opinion enough?
A broker opinion of value is enough to decide whether and at what price to sell. A lender will order its own appraisal or evaluation for a loan, and a court, an estate or a tax matter usually needs an appraisal from a licensed appraiser.
Why do buyers care so much about the leases?
Because the leases are the income they are buying. In the worked example on this page, a tenant on 5,000 of 12,000 square feet leaving in a year costs a buyer about 256,000 dollars in lost rent, tenant improvements and leasing commissions, and the price drops by about that much.
What is a cap rate, in one line?
Net operating income divided by value. It is the yield a buyer accepts for that kind of building in that market, taken from recent sales, and a higher cap rate means a lower value for the same income.