Residential value comes mostly from comparable sales. Commercial value comes mostly from income — what the property earns, and what an investor will pay for that income stream. That single difference is where most owners misjudge their building.
The income approach (the one that matters most)
For income-producing property, value comes down to one relationship:
Net Operating Income ÷ Cap Rate = Value
NOI is gross income minus operating expenses — taxes, insurance, management, maintenance, reserves. Note what's not subtracted: your mortgage. NOI measures the property's performance, not your financing.
Cap rate is the return the market requires for that asset type, location, and risk level. It's pulled from comparable sales, and it moves with interest rates. The key intuition: a lower cap rate produces a higher value for the same income.
Worked example: a property with $100,000 of NOI at a 7% cap rate is worth about $1.43M. The same $100,000 at a 6% cap rate is worth about $1.67M. The income didn't change — the market's pricing of risk did. You can run your own scenarios with the Property Value Estimator.
The sales-comparison approach
What did similar properties actually sell for, usually expressed per square foot? This approach carries more weight for owner-user buildings, retail condos, and land than for stabilized income property, where the income approach dominates.
The cost approach
Land value plus replacement cost minus depreciation. It's mostly relevant for special-purpose or newer buildings where comparable sales and income data are thin.
What moves the number locally
- Lease structure and remaining term — eight years left prices very differently than one.
- Tenant credit quality and whether the lease is NNN or gross.
- Condition and deferred maintenance — the market discounts work it expects to inherit.
- Zoning, permitted uses, location, and traffic counts within the specific submarket.
- Interest rates, which push cap rates up or down across the board.
Where Lake County owners get it wrong
The most common mistakes: pricing off what they paid or what they "need" to net; pricing residential-style off a neighbor's sale; or applying a cap rate from a different asset class or a different market. Cap rates vary by product type and submarket and move with rates — there is no single county-wide number. An accurate valuation is asset-specific and current, built on the property's real income and the comparable sales in its exact submarket.
