Ground Rent Capitalization
A land valuation method that estimates land value by capitalizing the ground rent (the rent paid for the use of land only, without improvements) at an appropriate capitalization rate.
This technique is applicable when ground leases exist in the market. The appraiser identifies comparable ground lease rents, applies them to the subject site, and capitalizes the annual ground rent at a market-derived land capitalization rate. For example, if similar sites lease for $20,000 per year and the market land cap rate is 5%, the indicated land value is $400,000. Ground rent capitalization is most common in areas where ground leases are prevalent (such as Baltimore, Hawaii, and certain commercial markets) but is less frequently applicable in typical suburban residential settings.
Related Terms
Land Value
The market value of a parcel of land as if vacant and available for development to its highest and best use.
Capitalization Rate (Cap Rate)
Cap RateThe ratio of a property's net operating income to its market value or sale price, expressed as a percentage.
Site Value
The market value of the land as if vacant and available for development to its highest and best use.
Income Approach
A valuation method that estimates a property's value based on the income it generates or is expected to generate.
More in Land & Site Valuation
View allAllocation Method
A land valuation technique that estimates land value by applying the typical ratio of land value to total property value observed in the market.
Extraction Method
A land valuation technique that estimates land value by subtracting the depreciated cost of improvements from the total sale price of an improved property.
Land Residual Technique
A land valuation method that estimates land value by capitalizing the net income remaining after deducting the return attributable to the improvements from the property's total net operating income..
Plottage
The increase in value that results from combining two or more adjacent parcels into a single, larger parcel.