Glossary

Market Extraction Method

A technique for deriving a capitalization or discount rate directly from verified comparable sales, by dividing each comparable's stabilized NOI (for a cap rate) or by solving the DCF equation for the implied discount rate (for a yield rate), given the comparable's known sale price and projected cash flows.

Because market extraction derives its rate from actual transaction evidence rather than from a formula built up out of separately estimated components, appraisers and reviewers generally treat it as the most persuasive support for a capitalization or discount rate whenever a sufficient number of truly comparable, arm's-length, verified sales exist — the same evidentiary hierarchy that favors the sales comparison approach generally. The method's reliability depends heavily on the quality of the NOI reconstruction used for each comparable: extracting a cap rate requires confidence in the comparable's actual stabilized income and expenses at time of sale, information a buyer's broker or seller may not disclose completely, which is why verified, non-listing transaction data confirmed with a party to the transaction carries more weight than data pulled solely from a comp database. When comparable sales are too few, too dissimilar, or from a market with insufficient velocity, appraisers fall back on band of investment, mortgage-equity analysis, the build-up method, or published investor surveys — but market extraction remains the benchmark those alternative techniques are reconciled against wherever adequate data exists.