Property Valuation
In Hawaii, what is a 'capitalization rate' adjustment for different types of property?
AA. Cap rates are fixed at 5% for all properties
BB. Cap rates vary based on property type, location, quality, and market conditions, reflecting different risk levels✓ Correct
CC. Only luxury properties use cap rates
DD. Cap rates are set by the Hawaii Real Estate Commission
Explanation
Cap rates vary by property type and market conditions. Higher-risk properties (older, lower-quality) have higher cap rates; lower-risk properties (newer, trophy assets) have lower cap rates, reflecting investor return expectations.
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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.
Comparable Sales (Comps)Recently sold properties similar in size, condition, and location used by appraisers and agents to estimate a property's market value.
Adjustable-Rate Mortgage (ARM)A mortgage with an interest rate that changes periodically based on a financial index, usually after an initial fixed-rate period.
Pre-ApprovalA lender's conditional commitment to loan a specific amount to a borrower, based on verified income, credit, and assets.
Math Concepts
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