An appraiser in New York is valuing a rent-stabilized building in Brooklyn using the income approach. The building generates $120,000 in gross rental income, but $30,000 of this is from rent-stabilized units below market rate. How should the appraiser handle this situation?
Correct Answer
B) Apply a capitalization rate that reflects the rent regulation restrictions
Under New York's rent stabilization laws, the appraiser should use the actual restricted rents but apply a capitalization rate that reflects the increased risk and limited income potential due to rent regulation. This approach accounts for the legal restrictions while providing an accurate market value.
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