Property Valuation
A commercial appraiser in Billings uses the direct capitalization method and determines that a retail strip center has an NOI of $120,000 and comparable cap rates are 7%. What is the indicated value?
A$840,000
B$1,200,000
C$1,714,286✓ Correct
D$2,000,000
Explanation
Using direct capitalization: Value = NOI ÷ Cap Rate = $120,000 ÷ 0.07 = $1,714,286. To solve this, multiply the relevant values: $120,000 at 7%.. The correct answer is $1,714,286.. This is a common calculation on the Montana real estate exam.
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