Property Valuation
In West Virginia, the income capitalization approach requires the appraiser to estimate the property's:
AReplacement cost and accrued depreciation
BStabilized net operating income and appropriate capitalization rate✓ Correct
CComparable sales prices and time adjustments
DGross rent multiplier and vacancy rate only
Explanation
The income capitalization approach requires estimating the property's stabilized net operating income (NOI) and dividing by an appropriate market-derived capitalization rate (Value = NOI / Cap Rate).
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Key Terms to Know
Net Operating Income (NOI)
The annual income generated by an income-producing property after subtracting operating expenses, but before debt service.
Capitalization Rate (Cap Rate)A rate used to estimate the value of income-producing property, calculated as Net Operating Income divided by property value.
DepreciationA reduction in the value of an improvement (building) over time due to physical deterioration, functional obsolescence, or external factors.
Gross Rent Multiplier (GRM)A quick valuation metric for income properties calculated by dividing the property price by gross annual rental income.
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