Market Rent
The rental income a property would most likely command on the open market, based on analysis of comparable rental properties in the area. Market rent may differ from the property's actual (contract) rent.
Market rent is estimated by analyzing comparable rentals — similar properties currently offered or recently rented in the competitive market area. The appraiser considers factors such as unit size, condition, amenities, location, and lease terms. If the subject's actual rent is below market, it may indicate a below-market lease or deferred rent increases. If above market, the tenant may not renew at lease expiration. In the income approach, market rent is used rather than contract rent to estimate value, unless the property is encumbered by a long-term lease that affects its marketability.
Related Terms
Gross Rent Multiplier (GRM)
GRMThe ratio of a property's sale price to its gross monthly (or annual) rental income.
Effective Gross Income (EGI)
EGIPotential gross income minus vacancy and collection losses, plus other income (laundry, parking, late fees).
Income Approach
A valuation method that estimates a property's value based on the income it generates or is expected to generate.
Vacancy Rate
The percentage of available rental units or space that is unoccupied at a given time.
More in Income Approach
View allCapitalization Rate (Cap Rate)
Cap RateThe ratio of a property's net operating income to its market value or sale price, expressed as a percentage.
Net Operating Income (NOI)
NOIThe annual income remaining after deducting all operating expenses from effective gross income, but before deducting debt service (mortgage payments) and income taxes.
Discounted Cash Flow Analysis (DCF)
DCFA yield capitalization technique that estimates property value by projecting future cash flows (income minus expenses) over a holding period and discounting them to present value using a market-derived discount rate..
Operating Expenses
The recurring costs of owning and operating an income-producing property, including property taxes, insurance, management, maintenance, utilities, and reserves for replacement.