Certified Residential Appraiser Practice Exam

What is the relationship between a single year’s NOI expectancy and the total property price or value?

1. Overall Yield Rate

2. Equity Cap Rate

3. Discount Rate

4. Overall Capitalization Rate

The correct answer is: Overall Capitalization Rate

The relationship between a single year's Net Operating Income (NOI) expectancy and the total property price or value is defined by the Overall Capitalization Rate. This rate is a fundamental concept in real estate appraisal and investment analysis, representing the ratio of a property's NOI to its overall value or price. When an appraiser wants to determine the value of an income-producing property, they often use the Overall Capitalization Rate as a key metric. The formula to derive value using the cap rate involves dividing the NOI by the cap rate, where the cap rate itself reflects the return expected by investors given the risk associated with the property. For example, if a property generates an NOI of $100,000 and the cap rate is 10%, the property's estimated value would be $1,000,000 (calculated as $100,000 / 0.10). Thus, the Overall Capitalization Rate provides a direct method for linking expected income with property valuation, allowing appraisers and investors to analyze the performance and appeal of income-generating properties in the market. The other choices, such as the Overall Yield Rate, Equity Cap Rate, and Discount Rate, involve different aspects of evaluating investments and financing rather than directly connecting NOI to property value in the same