A licensed appraiser in Virginia is estimating the value of a 20-unit apartment complex in Roanoke. The property generates $180,000 in effective gross income (already net of vacancy and collection losses) and has annual operating expenses of $60,000. The appraiser determines an appropriate capitalization rate of 7.5%. Which appraisal approach is the appraiser primarily using, and what is the estimated value of the property?
Correct Answer
C) Income approach; estimated value is $1,600,000
Using the income approach: NOI = Effective Gross Income − Operating Expenses = $180,000 − $60,000 = $120,000. Value = NOI ÷ Cap Rate = $120,000 ÷ 0.075 = $1,600,000.
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Related Topics & Key Terms
Key Terms:
Related Concepts
Depreciation is an accounting method of allocating the cost of an asset over its useful life, allowing investors to deduct a portion of the asset's cost each year.
Highest and best use is an appraisal concept that identifies the most profitable, legally permitted, physically possible, and financially feasible use of a property. It is the foundation of all property valuation.
Homestead portability allows homeowners to transfer a portion of their accumulated homestead tax savings to a new homestead in the same state.
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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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