Property Valuation
A Virginia appraiser computes an overall rate (OAR) or cap rate using the 'market extraction method.' This involves:
ACalculating the band of investment
BExtracting cap rates from recent comparable investment property sales✓ Correct
CSurveying local property managers
DUsing the prime interest rate
Explanation
Market extraction derives cap rates from actual sales of comparable income properties (NOI ÷ sale price for each comparable). This direct market evidence produces the most reliable cap rate for appraisal purposes.
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Key Terms to Know
Appraisal
A professional estimate of a property's market value prepared by a licensed or certified appraiser.
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.
Math Concepts
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