Property Valuation
An appraiser values a Missoula apartment building using the income approach. The net operating income (NOI) is $60,000 and the capitalization rate is 6%. What is the estimated value?
A$360,000
B$600,000
C$1,000,000✓ Correct
D$1,200,000
Explanation
Using the income approach: Value = NOI / Cap Rate = $60,000 / 0.06 = $1,000,000.
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Key Terms to Know
Net Operating Income (NOI)
The annual income generated by an income-producing property after subtracting operating expenses, but before debt service.
Capitalization Rate (Cap Rate)A rate used to estimate the value of income-producing property, calculated as Net Operating Income divided by property value.
AppraisalA professional estimate of a property's market value prepared by a licensed or certified appraiser.
DepreciationA reduction in the value of an improvement (building) over time due to physical deterioration, functional obsolescence, or external factors.
Math Concepts
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