Patricia is a Nevada-licensed broker who represents a seller of a rental duplex. The buyer's lender requires an independent appraisal, and the appraiser uses the income approach to estimate value. The appraiser determines the property has a gross annual rental income of $36,000, a vacancy and collection loss of 5%, and annual operating expenses of $7,200. Using a capitalization rate of 8%, what is the appraiser's estimated value of the property?
Correct Answer
C) $337,500
EGI = $36,000 × 0.95 = $34,200. NOI = $34,200 − $7,200 = $27,000. Value = NOI ÷ Cap Rate = $27,000 ÷ 0.08 = $337,500.
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Related Topics & Key Terms
Key Terms:
Related Concepts
Homestead portability allows homeowners to transfer a portion of their accumulated homestead tax savings to a new homestead in the same state.
The income approach estimates a property's value based on the income it generates by converting net operating income into a value estimate using a capitalization rate. It is the preferred method for income-producing properties.
Many states have laws to limit how much property taxes can increase each year, regardless of market value fluctuations.
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- → The income approach to appraisal is most commonly used for which type of property?
- → Which formula correctly calculates the capitalization rate?
- → External obsolescence in Oklahoma:
- → The sales comparison approach to appraisal is most appropriate for which type of property?
- → Which of the following correctly lists the three types of depreciation recognized in real estate appraisal?
- → The sales comparison approach to appraisal is most commonly used for which type of property?
- → Which four tests must a use satisfy to qualify as the highest and best use of a property?
- → Three depreciation:
- → Cap rate:
- → Which formula best represents the cost approach to appraisal?
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