Property Valuation
Which Mississippi market factor would most likely cause capitalization rates to INCREASE?
AStrong investor demand for real estate
BRising interest rates and reduced investor confidence✓ Correct
CDecreasing vacancy rates
DImproving local employment rates
Explanation
Cap rates tend to move with interest rates and investor risk perception. Rising interest rates increase the cost of capital and reduce investor demand for real estate, pushing cap rates higher (and property values lower, all else equal).
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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.
Discount PointsPrepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.
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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