Property Valuation
An Illinois appraiser is appraising a 20-unit apartment building. Which approach to value is MOST appropriate?
ACost approach only
BSales comparison approach only
CIncome capitalization approach, with sales comparison as a secondary check✓ Correct
DAssessed value approach
Explanation
For income-producing properties like a 20-unit apartment building, the income capitalization approach (which values the property based on its income-generating potential) is the primary method. The sales comparison approach using sales of comparable apartment buildings serves as a secondary check.
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Key Terms to Know
Net Operating Income (NOI)
The annual income generated by an income-producing property after subtracting operating expenses, but before debt service.
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.
AppraisalA professional estimate of a property's market value prepared by a licensed or certified appraiser.
Math Concepts
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