Property Valuation
A Colorado appraiser uses the 'Income Capitalization' approach on a commercial property. The NOI is $85,000 and the market cap rate is 6.5%. What is the value?
A$1,153,846
B$1,307,692✓ Correct
C$1,550,000
D$1,700,000
Explanation
Value = NOI / Cap Rate = $85,000 / 0.065 = $1,307,692.
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Key Terms to Know
Capitalization Rate (Cap Rate)
A rate used to estimate the value of income-producing property, calculated as Net Operating Income divided by property value.
Net Operating Income (NOI)The annual income generated by an income-producing property after subtracting operating expenses, but before debt service.
AppraisalA professional estimate of a property's market value prepared by a licensed or certified appraiser.
Comparable Sales (Comps)Recently sold properties similar in size, condition, and location used by appraisers and agents to estimate a property's market value.
Math Concepts
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