The total rent for fourplex is $4,000 per month. Additional annual income from parking is $1,000. Annual operating expenses are $11,000. If the appraiser uses a 10% CAP rate, what is the market value?

Rationale

The market value of the fourplex is $430,000.

To calculate the market value using the Capitalization Rate (CAP rate), we first determine the net operating income (NOI). The total income from rent is $48,000 annually ($4,000 x 12), and adding the parking income gives us $49,000. Subtracting the annual operating expenses of $11,000 results in a NOI of $38,000. Dividing this by the CAP rate of 10% (0.10), we find the market value to be $430,000.

A ($420,000) YOUR ANSWER

This option represents a market value that is lower than the calculated value. It suggests a NOI that is incorrectly computed, either by not considering the full income from rent and parking or by miscalculating the expense deductions. The correct NOI leads to a higher market value.

B ($430,000) CORRECT

This choice accurately reflects the market value derived from the correct calculation of the net operating income and applying the 10% CAP rate. The calculation process—considering total income, subtracting operating expenses, and using the CAP rate—leads to this precise value.

C ($442,000) YOUR ANSWER

Choosing this value implies an inflated assessment of the property’s NOI or an incorrect application of the CAP rate. This estimate does not align with the standard formula for determining market value based on the provided data.

D ($452,000) YOUR ANSWER

This option suggests an even greater market value, likely resulting from a miscalculation of either income or expenses. The discrepancy indicates that the methodology used to arrive at this figure does not follow the established CAP rate valuation process, which results in a lower market value.

Conclusion

The market value of the fourplex is accurately determined to be $430,000 through a thorough computation of its net operating income and applying the 10% CAP rate. This value stands in contrast to the incorrect assessments offered by the other options, which fail to accurately reflect the relationship between income, expenses, and the CAP rate. Understanding this calculation is vital for accurate property appraisal.

The total rent for fourplex is $4,000 per month. Additional annual income from parking is $1,000. Annual operating expenses are $11,000. If the appraiser uses a 10% CAP rate, what is the market value?

The market value of the fourplex is $430,000.

Related Questions

Related Quizzes

How familiar were you with this question?

Report an Issue

Rate this Practice Test