Property Valuation
A Wyoming commercial appraiser uses direct capitalization to value an office building. The NOI is $120,000 and the market cap rate is 7%. What is the indicated value?
A$840,000
B$1,714,286✓ Correct
C$8,400
D$1,200,000
Explanation
Value = NOI ÷ Cap Rate = $120,000 ÷ 0.07 = $1,714,286 (rounded to $1,714,286).
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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.
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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