Property Valuation
In the income approach to value, the capitalization rate is used to:
ADetermine a property's replacement cost
BConvert net operating income into an estimate of market value✓ Correct
CCompare the property to recent sales
DAdjust for physical depreciation
Explanation
The income approach divides net operating income (NOI) by the capitalization rate to estimate value: Value = NOI ÷ Cap Rate. A lower cap rate produces a higher value for the same income stream.
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