In August 2026, appraiser Omar Lewis is valuing a small retail strip. Potential gross income is $96,000, vacancy and collection loss is $6,000, annual operating expenses are $30,000, and market participants are using a 10% overall cap rate. What value is indicated by direct capitalization?
Correct Answer
B) $600,000
Step 1: Effective gross income = $96,000 − $6,000 = $90,000. Step 2: NOI = $90,000 − $30,000 = $60,000. Step 3: Value = NOI ÷ Cap Rate = $60,000 ÷ 0.10 = $600,000.
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