Extracting an overall rate from a comparable sale requires that the comparable's NOI be:

Correct Answer

C) Computed on the same basis as the subject's NOI

Why this is correct: The direct capitalization method extracts an overall rate (OAR) from a comparable sale by dividing its net operating income (NOI) by its sale price. For this extracted rate to be applicable to the subject property, the NOI of the comparable must be calculated using the same definitions, inclusions, and exclusions (e.g., treatment of replacement reserves, management fees) as the subject's NOI. This consistency ensures the rate reflects the same income stream relationship. Why the other choices are wrong: 'Reported by the buyer's lender at closing' is wrong because lender-reported figures are not the standard for appraisal analysis and may not reflect the stabilized NOI needed for valuation. 'Higher than the subject's net operating income' is wrong because the comparable's NOI can be higher, lower, or similar; the critical factor is consistent calculation, not its magnitude. 'Adjusted for the buyer's financing terms' is wrong because the overall rate in direct capitalization is derived from a property's income and sale price, and financing terms are not part of this specific extraction calculation; financing adjustments are considered separately in other analyses. Exam tip: When extracting a rate, always verify the comparable's NOI calculation matches your subject's NOI definition. Inconsistency here invalidates the entire capitalization.