What formula is used to find the subject's value using ground cap rate?

What formula is used to find the subject's value using ground cap rate?

• A. Subject Income multiplied by Cap Rate
• B. Comp Income divided by Comp Value
• C. Comp Value multiplied by Rate
• D. Subject Value divided by Comp Income

Answer: (B)

The correct approach to finding the subject's value using ground cap rate involves understanding how capitalization rates function in real estate appraisal. The capitalization rate expresses the relationship between the income a property generates and its value. To determine the value of a subject property using the income approach, the formula incorporates the structure of dividing the net operating income from comparable properties by their respective values. When you use the income of a comparable property divided by its market value, you derive the cap rate. This can be rearranged to find the subject property’s value. If you have a proposed cap rate based on comparable properties, you can apply it to the income generated by the subject property to determine its value. Therefore, the derived relationship indicates that the gross income produced by the subject property can be evaluated against the cap rate obtained from comparable properties to find its market value. In summary, to derive the subject property value accurately using a ground cap rate, this method leverages the relationship of income relative to comparable value, allowing appraisers to assess fair market value based on established and proven metrics from similar properties.

The correct approach to finding the subject's value using ground cap rate involves understanding how capitalization rates function in real estate appraisal. The capitalization rate expresses the relationship between the income a property generates and its value. To determine the value of a subject property using the income approach, the formula incorporates the structure of dividing the net operating income from comparable properties by their respective values.

When you use the income of a comparable property divided by its market value, you derive the cap rate. This can be rearranged to find the subject property’s value. If you have a proposed cap rate based on comparable properties, you can apply it to the income generated by the subject property to determine its value. Therefore, the derived relationship indicates that the gross income produced by the subject property can be evaluated against the cap rate obtained from comparable properties to find its market value.

In summary, to derive the subject property value accurately using a ground cap rate, this method leverages the relationship of income relative to comparable value, allowing appraisers to assess fair market value based on established and proven metrics from similar properties.