Property Valuation
A capitalization rate is used in the income approach to:
ACalculate depreciation
BConvert net operating income into an estimate of property value✓ Correct
CDetermine the market value of comparable sales
DEstimate the cost of improvements
Explanation
The capitalization rate converts a property's net operating income into a value estimate: Value = NOI ÷ Cap Rate. A higher cap rate indicates higher risk and lower value.
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