Property Valuation
The 'income capitalization approach' is most appropriate for valuing which type of North Dakota property?
AOwner-occupied single-family homes
BIncome-producing properties such as apartment complexes and commercial buildings✓ Correct
CVacant land with no improvements
DPersonal residences of elected officials
Explanation
The income capitalization approach is most reliable for income-producing properties where the primary value driver is the property's ability to generate income. It is less applicable to owner-occupied homes where the value is primarily based on comparable sales.
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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.
Comparable Sales (Comps)Recently sold properties similar in size, condition, and location used by appraisers and agents to estimate a property's market value.
Gross Rent Multiplier (GRM)A quick valuation metric for income properties calculated by dividing the property price by gross annual rental income.
Net Operating Income (NOI)The annual income generated by an income-producing property after subtracting operating expenses, but before debt service.
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