Property Valuation
The capitalization rate (cap rate) used in the income approach reflects:
AThe property's appreciation rate
BAn investor's required rate of return based on risk✓ Correct
CThe mortgage interest rate
DThe local property tax rate
Explanation
The cap rate reflects the investor's expected return on investment, adjusted for risk. Higher-risk properties command higher cap rates (lower values). It is a key tool in the income approach.
Related New Mexico Property Valuation Questions
- Which principle of value states that the value of a property is affected by surrounding properties?
- In New Mexico, an appraiser is asked to estimate the 'value in use' of a specialty property (e.g., a church or school). This value differs from market value because:
- Functional obsolescence in a New Mexico home would be best described as:
- Market value in New Mexico appraisal is defined as:
- In New Mexico, an 'appraisal review' is performed by an appraiser to:
- In New Mexico, 'economic obsolescence' (also called external obsolescence) is caused by:
- Which principle of appraisal states that value is created by the expectation of future benefits?
- In New Mexico, 'interim use' in highest and best use analysis refers to:
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