Property Valuation
When appraising a property using the income approach, stabilized NOI is used rather than actual current NOI because:
AStabilized NOI is always higher than actual NOI
BStabilized NOI represents typical income at market occupancy, removing short-term anomalies✓ Correct
CUSPAP requires stabilized NOI for all appraisals
DLenders prefer stabilized NOI for tax purposes
Explanation
Stabilized NOI normalizes income at a sustainable, typical market occupancy level, providing a more reliable basis for value than income that may be temporarily above or below normal.
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Key Terms to Know
Appraisal
A professional estimate of a property's market value prepared by a licensed or certified appraiser.
Net Operating Income (NOI)The annual income generated by an income-producing property after subtracting operating expenses, but before debt service.
Capitalization Rate (Cap Rate)A rate used to estimate the value of income-producing property, calculated as Net Operating Income divided by property value.
Comparable Sales (Comps)Recently sold properties similar in size, condition, and location used by appraisers and agents to estimate a property's market value.
Math Concepts
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