Property Valuation
Which of the following factors would an Alaska appraiser MOST likely use to determine the appropriate capitalization rate for a multi-family property?
AThe owner's personal investment goals
BRecent cap rates from comparable multi-family sales in the market area✓ Correct
CThe property's outstanding mortgage balance
DThe number of units in the property
Explanation
Cap rates are market-derived — they are extracted from recent arm's-length sales of comparable income-producing properties by dividing each property's NOI by its sale price. The resulting cap rates from multiple comparable sales indicate the appropriate cap rate for the subject property.
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Key Terms to Know
Capitalization Rate (Cap Rate)
A rate used to estimate the value of income-producing property, calculated as Net Operating Income divided by property value.
Adjustable-Rate Mortgage (ARM)A mortgage with an interest rate that changes periodically based on a financial index, usually after an initial fixed-rate period.
Net Operating Income (NOI)The annual income generated by an income-producing property after subtracting operating expenses, but before debt service.
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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