Property Valuation
An appraiser values a Mississippi property using the income approach. To estimate value using direct capitalization, the appraiser must:
AOnly estimate the property's replacement cost
BEstimate the property's stabilized net operating income and divide by a market-derived capitalization rate✓ Correct
CSurvey all tenants about their satisfaction
DUse the property's assessed value from county records
Explanation
Direct capitalization: Value = Stabilized NOI ÷ Capitalization Rate. The appraiser must develop a credible NOI estimate (stabilized for typical vacancy, credit loss, and operating expenses) and derive an appropriate cap rate from market evidence.
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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.
Net Operating Income (NOI)The annual income generated by an income-producing property after subtracting operating expenses, but before debt service.
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.
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