Direct Capitalization: Cap Rates From Comparable Sales, and Value on the Appraiser's NOI
Extract a cap rate from three comparable sales, take the replacement reserve off the NOI the way an appraiser does, capitalize that income into value, and see how much value a lender's NOI would add if it were capitalized at an appraiser's rate.
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Learning objective
Learners will extract a cap rate from three comparable sales, deduct the replacement reserve from NOI the way an appraiser does, and capitalize that income into a value. They will quantify how much value a lender's NOI would overstate if it were capitalized at the appraiser's rate.
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1. Cap Rates From Comparable Sales
Extract a cap rate from each sale: its income over its price, with the income on the appraiser's basis, after the replacement reserve.
The price the comparable apartment building sold for.
The comparable's verified NOI, rebuilt on the appraiser's basis: after a replacement reserve, like the subject's.
B9Comparable A: Cap Rate
5.65%
=CompAIncome/CompAPrice
Comparable A's NOI after reserve divided by its sale price.
Source
- Freddie Mac Multifamily Seller/Servicer Guide, Chapter 60 (Section 60.14 dated 06/24/25), Section 60.14(c), Income approach, p. 27
- Fannie Mae, Instructions for Appraisers (Form 4827), August 2026, Section 1.09, Capitalization Rate Derivation, p. 7
- HUD, Form HUD-92264, Multifamily Summary Appraisal Report (8/95), Section K, Income Approach to Value, line (2), p. 6
- Freddie Mac Multifamily, Capitalization Rate Guidance (March 2025), “The universal formula for calculating value on the basis of a cap rate”
The price the comparable apartment building sold for.
The comparable's verified NOI, rebuilt on the appraiser's basis: after a replacement reserve, like the subject's.
B12Comparable B: Cap Rate
5.80%
=CompBIncome/CompBPrice
Comparable B's NOI after reserve divided by its sale price.
Source
- Freddie Mac Multifamily Seller/Servicer Guide, Chapter 60 (Section 60.14 dated 06/24/25), Section 60.14(c), Income approach, p. 27
- Fannie Mae, Instructions for Appraisers (Form 4827), August 2026, Section 1.09, Capitalization Rate Derivation, p. 7
- HUD, Form HUD-92264, Multifamily Summary Appraisal Report (8/95), Section K, Income Approach to Value, line (2), p. 6
- Freddie Mac Multifamily, Capitalization Rate Guidance (March 2025), “The universal formula for calculating value on the basis of a cap rate”
The price the comparable apartment building sold for.
The comparable's verified NOI, rebuilt on the appraiser's basis: after a replacement reserve, like the subject's.
B15Comparable C: Cap Rate
5.90%
=CompCIncome/CompCPrice
Comparable C's NOI after reserve divided by its sale price.
Source
- Freddie Mac Multifamily Seller/Servicer Guide, Chapter 60 (Section 60.14 dated 06/24/25), Section 60.14(c), Income approach, p. 27
- Fannie Mae, Instructions for Appraisers (Form 4827), August 2026, Section 1.09, Capitalization Rate Derivation, p. 7
- HUD, Form HUD-92264, Multifamily Summary Appraisal Report (8/95), Section K, Income Approach to Value, line (2), p. 6
- Freddie Mac Multifamily, Capitalization Rate Guidance (March 2025), “The universal formula for calculating value on the basis of a cap rate”
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