Property Valuation
The income capitalization approach to value is most commonly used for:
ASingle-family owner-occupied homes
BIncome-producing investment properties✓ Correct
CVacant land parcels
DSpecial-use properties like churches
Explanation
The income capitalization approach converts a property's income stream into a value estimate and is primarily used for income-producing investment properties like apartment buildings, office complexes, and retail centers. The formula is: Value = Net Operating Income ÷ Capitalization Rate.
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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.
AppraisalA professional estimate of a property's market value prepared by a licensed or certified appraiser.
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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