Property Valuation
In the income approach, what is the 'capitalization rate' (cap rate)?
AThe annual appreciation rate of a property
BThe rate used to convert net operating income into a property value estimate; NOI ÷ Value✓ Correct
CThe interest rate on a commercial mortgage
DThe percentage of income the landlord collects as rent
Explanation
The capitalization rate (cap rate) converts a property's Net Operating Income (NOI) into a value estimate. Formula: Value = NOI ÷ Cap Rate. A lower cap rate indicates a higher value relative to income; a higher cap rate indicates a lower value relative to income.
Related California Property Valuation Questions
- What is 'comparables' (comps) in real estate?
- The concept of 'regression' in real estate appraisal means:
- An appraiser conducting 'paired sales analysis' is attempting to:
- Functional obsolescence refers to:
- The 'highest and best use' of a property is defined as the use that meets all four of which criteria?
- The income approach to value is most commonly used for:
- The effective age of a building refers to:
- The cost approach to appraisal is MOST useful for which type of property?
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