This section is from the book "Practical Real Estate Methods For Broker, Operator & Owner", by Thirty Experts. Also available from Amazon: Practical Real Estate Methods for Broker, Operator, Owner.
The average ratio of rental to fee value differs; generally, in an office building it is 8% gross, in an elevator apartment house 12%, in a flat or tenement 10%, in a residence 7%. Of course, these ratios may vary. There are many cases where there is no revenue, as in the case of residences occupied by the owners. It is then the duty of the appraiser to ascertain the rental of similar buildings in the same location. After long experience as an appraiser it is not difficult to appraise the value of a building or buildings from general knowledge, even if the rental value be unobtainable. Sometimes the value can be arrived at by a certain cost per cubic foot on different classes of buildings, but I do not consider this is a good method of appraising, and would only advise its use when it cannot be avoided, for it is a return to a structural value, and I think should only be adopted where the building is used for a specific purpose and the rental value cannot be determined.
In conclusion, let me say that there is no branch of our profession in which you will be more criticised or your motives more misjudged than that of expert appraising.
Yet, if you will arm yourselves in the way that I have outlined and appraise conscientiously, never allowing yourself to be guided by the opinion of an owner or his attorney, and will take only cases in which you are allowed absolute control as to values, you will forestall much criticism and at least have the approval of a clear conscience.