Property Management
The capitalization rate approach to evaluating an income property shows that if cap rates in a market increase, property values will:
AIncrease proportionally
BDecrease, assuming NOI remains constant✓ Correct
CRemain unchanged
DDouble
Explanation
Value = NOI ÷ Cap Rate. If cap rates increase and NOI stays the same, the denominator increases, causing value to decrease.
People Also Study
Related Montana Questions
- The capitalization rate (cap rate) is used in the income approach to value and is calculated as: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?Property Valuation
- A Montana property has an NOI of $42,000 per year and a cap rate of 7%. What is the estimated market value using the income approach?Real Estate Math
- In the income approach to value, a higher capitalization rate applied to a Montana income property would result in:Property Valuation
- A property has an annual NOI of $36,000 and a cap rate of 8%. What is its estimated value using the income approach?Real Estate Math
- A Montana homeowner's property tax bill shows: Market Value $280,000, Assessment Rate 100%, Taxable Value $280,000, Mill Levy 145 mills. What is the annual tax?Real Estate Math
- The income approach to value is most commonly used for:Property Valuation
- Annual property taxes are $4,200 on a home with a market value of $350,000. What is the effective tax rate?Real Estate Math
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.
Earnest MoneyA deposit made by the buyer when submitting a purchase offer, demonstrating serious intent and serving as consideration for the contract.
ContingencyA condition in a purchase contract that must be satisfied before the sale can proceed to closing.
Math Concepts
Study This Topic
Practice More Montana Real Estate Questions
1,500+ questions covering all exam topics. Start free — no signup required.
Take the Free Montana Quiz →