What technique uses net operating income and discount rate to estimate property value?

The technique that uses net operating income (NOI) and a discount rate to estimate property value is known as the income approach. This approach is particularly relevant for income-generating properties, such as rental apartments or commercial buildings, where the value is primarily derived from the income the property can generate over time.

In the income approach, the net operating income reflects the total income produced by the property after deducting operating expenses, but before considering financing costs and taxes. This NOI is then capitalized using a discount rate to estimate the present value of future cash flows. The capitalization process helps appraisers determine how much an investor would be willing to pay for the property based on its potential to generate income.

This methodology supports the idea that a property's value is directly related to its ability to earn income, making it a vital tool for valuing commercial real estate and investment properties. The income approach is not applicable to all property types; for instance, it is less useful for properties that do not generate income or for unique properties where comparable sales data is the primary method of valuation.