Property Valuation
Which approach is typically weighted most heavily when appraising a 4-unit residential rental property for a conventional mortgage?
ACost approach
BIncome approach✓ Correct
CSales comparison approach
DAll three equally
Explanation
For small income-producing residential properties (2-4 units), the income approach is typically weighted more heavily because investors consider income potential as a primary value driver. Sales comparison is also important if comparable sales exist.
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Key Terms to Know
Comparable Sales (Comps)
Recently sold properties similar in size, condition, and location used by appraisers and agents to estimate a property's market value.
Capitalization Rate (Cap Rate)A rate used to estimate the value of income-producing property, calculated as Net Operating Income divided by property value.
Gross Rent Multiplier (GRM)A quick valuation metric for income properties calculated by dividing the property price by gross annual rental income.
Net Operating Income (NOI)The annual income generated by an income-producing property after subtracting operating expenses, but before debt service.
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