What is the weighted average of the land capitalization rate and building cap rate known as?

The weighted average of the land capitalization rate and the building capitalization rate is referred to as the overall cap rate. This concept is crucial in real estate valuation as it provides a comprehensive measure of the expected return on a property by considering both the land and the improvements on it.

The overall cap rate helps investors and appraisers assess the performance of a property as a whole, rather than isolating just the land or just the improvements. Its derivation involves weighting each component based on its proportionate share of the total value. For instance, if the land constitutes a larger percentage of the total property value, its cap rate will have a more significant influence on the overall cap rate.

Understanding this term is essential for anyone involved in property valuation and investment analysis, as it impacts decision-making regarding purchasing, leasing, and overall property management strategies.

The other options represent different concepts related to capitalization rates but do not accurately define this specific weighted average.