Property Valuation
In a declining Colorado real estate market, what typically happens to cap rates for investment properties?
AA. Cap rates decrease as values fall
BB. Cap rates increase as investors require a higher return to compensate for greater risk✓ Correct
CC. Cap rates stay the same regardless of market conditions
DD. Cap rates become negative
Explanation
In a declining market, property values fall. If NOI stays the same or decreases, cap rates rise (NOI ÷ Value = Cap Rate — as the denominator falls, the ratio rises).
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