The term value or price can denote a couple of things in the real estate world. First, it signifies the amount a buyer will pay for a piece of property. Second, it can indicate net income or cash returned, divided by a capitalization rate. When someone makes an offer on a piece of property, he or she sets a price, or places a value, on the property. This amount can differ from the asking price as well as from the market value, and it reflects what the buyer considers a fair price, or value. That can be based on any set of reasons determined by the buyer. When valuing an investment property, one way to calculate a fair price is to take the expected amount of income from the property and divide it by the expected capitalization rate. This calculation will provide a value for the investment property.
