Property Valuation
An appraiser uses the income capitalization approach to value a South Dakota commercial property. The net operating income is $75,000 and the capitalization rate is 8%. What is the indicated value?
A$600,000
B$812,500
C$937,500✓ Correct
D$6,000,000
Explanation
Value = Net Operating Income ÷ Capitalization Rate = $75,000 ÷ 0.08 = $937,500.
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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.
AppraisalA professional estimate of a property's market value prepared by a licensed or certified appraiser.
Net Operating Income (NOI)The annual income generated by an income-producing property after subtracting operating expenses, but before debt service.
Gross Rent Multiplier (GRM)A quick valuation metric for income properties calculated by dividing the property price by gross annual rental income.
Math Concepts
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