Property Valuation
The income approach to value is MOST appropriate for valuing:
AA single-family owner-occupied home
BAn income-producing apartment complex in Huntington, WV✓ Correct
CVacant agricultural land in the Eastern Panhandle
DA recently built government building
Explanation
The income approach capitalizes net operating income to arrive at value. It is most appropriate for income-producing properties such as apartment buildings, where investors base purchase decisions on income potential.
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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.
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.
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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