Property Valuation
In the income approach, the overall capitalization rate (OAR) is most reliably derived from:
AThe appraiser's personal investment experience
BDividing the NOI of comparable sold properties by their sale prices✓ Correct
CMultiplying gross income by the effective gross income multiplier
DApplying the band of investment only
Explanation
The OAR is most reliably derived from market extraction — dividing the NOI of recently sold comparable income properties by their sale prices. This reflects what the market actually paid for similar income streams.
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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.
Gross Rent Multiplier (GRM)A quick valuation metric for income properties calculated by dividing the property price by gross annual rental income.
Comparable Sales (Comps)Recently sold properties similar in size, condition, and location used by appraisers and agents to estimate a property's market value.
AppraisalA professional estimate of a property's market value prepared by a licensed or certified appraiser.
Math Concepts
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