Market Extraction
A method of deriving capitalization rates, depreciation rates, or adjustment values directly from analysis of comparable market transactions rather than from theoretical formulas or published sources.
Market extraction is considered the most reliable method for developing appraisal inputs because it reflects actual buyer and seller behavior. For example, a capitalization rate can be extracted by dividing the net operating income of a sold property by its sale price. Similarly, depreciation rates can be extracted by comparing the sale price of an improved property minus its land value to the estimated cost new of its improvements. USPAP and GSE guidelines strongly prefer market-extracted data over published surveys or appraiser assumptions.
Related Terms
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.
Paired Sales Analysis
A technique used to estimate the value contribution of a specific property feature by comparing two sales that are identical except for that one feature.
Adjustment
A dollar or percentage modification applied to a comparable sale's price to account for differences between the comparable and the subject property.
Depreciation
A loss in value from any cause.
More in Valuation Approaches
View allSales Comparison Approach
A valuation method that estimates a property's value by comparing it to similar properties that have recently sold in the same market area.
Cost Approach
A valuation method that estimates value by calculating the cost to reproduce or replace the improvements, subtracting accrued depreciation, and adding the land value.
Income Approach
A valuation method that estimates a property's value based on the income it generates or is expected to generate.
Market Value
The most probable price that a property should bring in a competitive and open market under all conditions requisite to a fair sale, with the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus..