Property Valuation
In the income approach, a West Virginia appraiser uses an overall capitalization rate (OAR). A lower OAR applied to the same NOI results in a:
ALower indicated value
BHigher indicated value✓ Correct
CThe same indicated value
DAn indicated value equal to the replacement cost
Explanation
Value = NOI ÷ Cap rate. A lower cap rate produces a higher value for the same NOI.
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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.
Net Operating Income (NOI)The annual income generated by an income-producing property after subtracting operating expenses, but before debt service.
AppraisalA professional estimate of a property's market value prepared by a licensed or certified appraiser.
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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