On the Close Relationship Between the Discount and Capitalization Rates: From the Estimate of the Market Value to the Estimate of the Resale Value

This brief theoretical note reviews the important and often not fully revealed relationship between the discount and capitalization rates. Precisely, within the framework of the Income Capitalization model, the present article highlights the role of these rates in estimating both the house market value and the resale value of the property. It emerges that the discount rate and the going-in capitalization rate are used in the estimation of the house market value; whereas, the going-out capitalization rate should be used in the estimation of the resale value of the property. Furthermore, the article shows that the estimate of the going-out capitalization rate is a “tricky” updating of both the discount rate and the going-in capitalization rate.