Property Valuation
An Arizona appraiser using the income approach to value a commercial property calculates a capitalization rate of 7%. If the net operating income (NOI) is $105,000, what is the estimated property value?
A$735,000
B$1,500,000✓ Correct
C$1,050,000
D$7,350,000
Explanation
Value = NOI ÷ Cap Rate = $105,000 ÷ 0.07 = $1,500,000.
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Key Terms to Know
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.
AppraisalA professional estimate of a property's market value prepared by a licensed or certified appraiser.
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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