Property Valuation
A Minnesota commercial property appraiser uses a 'band of investment' technique to determine the overall cap rate. This technique considers:
AThe average cap rates reported by local investors
BThe weighted cost of debt and equity components of a typical investment✓ Correct
CGovernment bond yields as a basis for real estate cap rates
DOnly the equity return requirements of typical investors
Explanation
The band of investment technique develops an overall capitalization rate by weighting the mortgage loan's required rate (considering LTV and amortization) and the equity investor's required return, based on their respective contributions to the purchase price. This reflects the investment from the perspective of both the lender and equity investor. It is used for income property appraisal in Minnesota.
Related Minnesota Property Valuation Questions
- In Minnesota, 'extraordinary assumptions' in an appraisal report are used when:
- A Minnesota buyer is purchasing a small strip mall and wants a cap rate analysis. The property has gross income of $120,000, vacancy allowance of $12,000, and operating expenses of $42,000. With a purchase price of $880,000, what is the cap rate?
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- In Minnesota appraisal practice, the term 'fee simple' value assumes the property is:
- In Minnesota, which appraisal principle explains why a property in a declining neighborhood may sell for less than its intrinsic worth?
- Which Minnesota property would MOST likely use the income approach as the primary appraisal method?
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- In Minnesota, which factor would most likely DECREASE a property's appraised value?
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