The capitalization rate (cap rate) used in the income approach to appraisal is calculated as:
Correct Answer
B) Net operating income divided by property value
The capitalization rate (cap rate) equals Net Operating Income (NOI) divided by Property Value (Cap Rate = NOI ÷ Value). Rearranged, Value = NOI ÷ Cap Rate. This formula is central to the income approach and is commonly used to appraise income-producing properties such as apartment buildings and commercial real estate throughout Alaska.
Why This Is the Correct Answer
Why the Other Options Are Wrong
Deep Analysis of This Valuation Question
Background Knowledge for Valuation
Real World Application in Valuation
Common Mistakes to Avoid on Valuation Questions
Related Topics & Key Terms
Related Topics:
Key Terms:
More Valuation Questions
The appraisal principle of substitution states that:
Physical deterioration, functional obsolescence, and external obsolescence are the three types of:
Highest and best use means the use that is:
In the sales comparison approach, adjustments are always made to the:
The sales comparison approach to appraisal is most commonly used for which type of property?
- → Which formula best represents the cost approach to appraisal?
- → Which appraisal method is most commonly used for residential properties and relies on recent sales of comparable properties?
- → The sales comparison approach to appraisal is most commonly used for which type of property?
- → The sales comparison approach to appraisal is most appropriate for which type of property?
- → A West Virginia property with 4 bedrooms but only 1 bathroom suffers from:
- → A Comparative Market Analysis (CMA) is best described as:
- → James owns a farm in rural Tennessee that qualifies for the Greenbelt Law. Under Tennessee's Greenbelt Law, how is agricultural land assessed for property tax purposes?
- → Which of the following correctly identifies the three types of depreciation recognized in real estate appraisal?
- → Which four criteria must a use satisfy to qualify as the highest and best use of a property?
- → Highest and best use: