Property Valuation
An appraiser in NH uses a 'market extraction' method to determine the cap rate for a commercial property. This involves:
AUsing a cap rate from a national database
BAnalyzing recent sales of similar income properties to determine the relationship between NOI and sale price✓ Correct
CApplying the appraiser's professional judgment without data support
DUsing the current prime interest rate as the cap rate
Explanation
Market extraction derives the cap rate from the market by analyzing recent sales of comparable income properties: Cap rate = NOI / Sale price. By extracting cap rates from multiple comparable sales, the appraiser determines the appropriate market-derived cap rate for the subject property.
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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.
Comparable Sales (Comps)Recently sold properties similar in size, condition, and location used by appraisers and agents to estimate a property's market value.
AppraisalA professional estimate of a property's market value prepared by a licensed or certified appraiser.
Math Concepts
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