The direct answer
Market rent is an evidence-supported estimate of rent obtainable in current market conditions. Contract rent is the amount required by an existing lease. For valuation, the relevant rent premise depends on lease duration, credit quality, property rights and whether the analysis values leased-fee cash flow or stabilized market operations.
Read actual lease rights first
Existing leases can constrain near-term rental cash flow above or below current market rents. Rent differences must be considered alongside remaining lease term and tenant obligations.
To apply the approach to an editable scenario, use the Comparative Market Analysis (CMA) Calculator. For the neighboring question, explore Property Value Calculator.
Support market assumptions with comparables
Compare location, property quality, lease structure, reimbursements, concessions and date of evidence. Quoted asking rates are not automatically achieved effective rents.
Model a credible transition
If the forecast transitions from contract to market rent at rollover, include downtime, leasing fees, tenant improvements and renewal risk.
Worked example
A unit under a two-year lease at $1,900 monthly might have supported market rent of $2,100. The $200 difference is potential future upside, not an immediate additional $2,400 of annual collected rent.
Open Comparative Market Analysis (CMA) Calculator and test your assumptions →
Common mistakes and limitations
Do not value an in-place leased asset as if every contract can reset to market rent today.
Does not access MLS and is not a licensed appraisal. Adjustments are supplied by the user.
Frequently asked questions
Does market rent always replace contract rent in valuation?
No. The valuation premise and enforceable lease terms determine appropriate treatment.
Is asking rent equivalent to market effective rent?
Not necessarily; concessions and actual leasing evidence can change the estimate.
Sources and further reading
The article’s examples are illustrative arithmetic. The references below provide context for operating, valuation or transaction concepts; they do not endorse the assumptions or the calculator.
- Office of the Comptroller of the Currency — Comptroller's Handbook — Commercial Real Estate LendingNOI, direct capitalization, cap-rate valuation and DCF concepts for commercial real estate.
- Appraisal Institute — Basic Formulas — Income CapitalizationIncome/cap-rate/value relationships, gross income multiplier and debt-coverage formula references.
Read our editorial policy for the scope of these educational methods.