A Delaware commercial property is listed at $1,200,000 with an annual NOI of $84,000. A buyer wants a 7% cap rate. Is the asking price justified?
Why No — at a 7% cap rate, the value is $1,200,000 which equals the asking price Is Correct
Answer A: No — at a 7% cap rate, the value is $1,200,000 which equals the asking price
Exam Tip: Real Estate Math
Math questions are formula-based. Memorize the key formulas: commission splits, proration, cap rate (NOI ÷ Value), GRM (Price ÷ Gross Rent), and LTV (Loan ÷ Value). Practice converting between annual and monthly figures.
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Key Terms to Know
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.
Loan-to-Value Ratio (LTV)The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.
Gross Rent Multiplier (GRM)A quick valuation metric for income properties calculated by dividing the property price by gross annual rental income.
Math Concepts
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