Property Valuation
What does a capitalization rate (cap rate) measure?
AThe total return on investment including appreciation
BThe relationship between net operating income and property value✓ Correct
CThe percentage of gross income paid as expenses
DThe loan-to-value ratio
Explanation
Cap rate = NOI ÷ Property Value. It measures the rate of return on an income property based on its net operating income. A higher cap rate indicates higher risk and/or lower price relative to income.
Related California Property Valuation Questions
- The cost approach to value is best suited for:
- Under the principle of conformity, property values are maximized when:
- The sales comparison approach to property valuation is MOST appropriate when appraising:
- What is 'depreciation' in real estate appraisal?
- Plottage value refers to the increased value resulting from:
- An appraiser uses the 'before and after' method when appraising property affected by:
- Functional obsolescence differs from physical deterioration in that it results from:
- The principle of substitution states that:
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