Land is worth $300,000 at a 6% land rate; the whole property earns $102,000 NOI. Under the building residual technique with an 8% building rate, the building value is:

Question

income-approachhard

Land is worth $300,000 at a 6% land rate; the whole property earns $102,000 NOI. Under the building residual technique with an 8% building rate, the building value is:

Answer Options

A

$700,000 remaining before the site share

B

$1,275,000 on the whole income

C

$840,000 at a blended rate

D

$1,050,000 after the land's claim

Why This Is the Correct Answer

Why this is correct: Using the building residual technique: 1) Calculate land income: $300,000 land value × 6% land rate = $18,000. 2) Subtract land income from total NOI: $102,000 - $18,000 = $84,000 building income. 3) Capitalize building income at the 8% building rate: $84,000 ÷ 0.08 = $1,050,000 building value. Why the other choices are wrong: $700,000 remaining before the site share is a miscalculation. $1,275,000 on the whole income incorrectly capitalizes the entire NOI at 8%. $840,000 at a blended rate uses an incorrect blended rate. Exam tip: In residual techniques, allocate income to each component first, then capitalize.

Was this explanation helpful?

People Also Study

Valuation Principles & Procedures

25% of exam

Property Description & Analysis

20% of exam

Market Analysis & Highest/Best Use

15% of exam

Appraisal Math & Statistics

15% of exam

USPAP (Ethics & Standards)

15% of exam

Previous Question

EGI is $410,000 and operating expenses including reserves total $168,000. Net operating income is:

Next Question

Capitalization rates in a market generally rise when:

income-approach Questions Practice Interactively

Accepted Answer

Correct Answer

D) $1,050,000 after the land's claim

Why this is correct: Using the building residual technique: 1) Calculate land income: $300,000 land value × 6% land rate = $18,000. 2) Subtract land income from total NOI: $102,000 - $18,000 = $84,000 building income. 3) Capitalize building income at the 8% building rate: $84,000 ÷ 0.08 = $1,050,000 building value. Why the other choices are wrong: $700,000 remaining before the site share is a miscalculation. $1,275,000 on the whole income incorrectly capitalizes the entire NOI at 8%. $840,000 at a blended rate uses an incorrect blended rate. Exam tip: In residual techniques, allocate income to each component first, then capitalize.

Land is worth $300,000 at a 6% land rate; the whole property earns $102,000 NOI. Under the building residual technique with an 8% building rate, the building value is:

Why This Is the Correct Answer

More income-approach Questions

People Also Study

Practice More Appraiser Questions