How to Determine Commercial Property Value (4 Methods)

Accurately valuing commercial real estate requires multiple approaches. Here are the four primary methods used by professionals — and how to apply them in the Los Angeles market.

Method 1: Income Capitalization Approach

The most important method for investment properties. Divides Net Operating Income by the market cap rate to produce an estimated value.

Value = NOI ÷ Cap Rate

For multifamily in LA: determine actual NOI (verifiable from tax returns and bank statements), then apply the appropriate cap rate for your specific submarket and property type.

Method 2: Sales Comparison Approach

Analyze recent comparable sales (comps) — similar properties that have closed in the past 6–12 months in the same neighborhood. Adjust for differences in size, unit mix, age, condition, and location. Most useful when strong comparable sales data exists.

Method 3: Cost/Replacement Approach

Estimates the cost to replace the improvements (building) plus the land value, minus depreciation. Most relevant for special-use or new construction properties where income comps are limited.

Method 4: Gross Rent Multiplier (GRM)

A quick screening tool: Price ÷ Annual Gross Rents. Useful for initial screening and comparing similar properties, but doesn't account for expense differences between buildings.

Which Method to Use?

For multifamily in LA County, the income capitalization approach and sales comparison approach are the primary valuation methods. Professional appraisers and experienced brokers typically use both and reconcile the results.

Samimi CRE Advisors provides free commercial property valuations using institutional-quality analysis. Request your valuation today.