Property Valuation
Capitalization rate (cap rate) is calculated by:
ADividing gross income by the purchase price
BDividing net operating income by the property value✓ Correct
CMultiplying net income by the market value
DDividing total expenses by gross income
Explanation
Cap Rate = Net Operating Income ÷ Property Value (or Price). It represents the expected rate of return on an investment property and is used to estimate value when the cap rate and NOI are known.
Related Connecticut Property Valuation Questions
- The 'physical life' of a building is estimated as the total years until the structure physically deteriorates to the point of being unsafe. For appraisal purposes, the more important concept is:
- Functional obsolescence in real estate appraisal refers to:
- The 'economic life' of a building is best defined as:
- A Connecticut appraiser uses the 'income multiplier' method. The property's potential gross income is $96,000. Similar properties trade at a potential gross income multiplier (PGIM) of 9.5. The indicated value is:
- Which type of depreciation in the cost approach is considered incurable because it arises from outside the property?
- Which best describes the 'capitalization rate' (cap rate) used in the income approach?
- A 'paired sales analysis' is used by appraisers to:
- The 'remaining economic life' of a Connecticut building is estimated as:
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