Property Valuation
The capitalization rate and property value have which type of relationship?
AThey are directly proportional (higher cap rate = higher value)
BThey are inversely proportional (higher cap rate = lower value)✓ Correct
CThey are unrelated
DThey only matter for residential properties
Explanation
Value = NOI ÷ Cap Rate. An inverse relationship exists: as the cap rate increases (higher perceived risk), the value decreases (for the same NOI). As the cap rate decreases (lower risk), value increases.
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