Certified Residential Appraiser Practice Exam

Which formula is used to solve for the Rate in appraisal?

1. I / V = R

2. I x R = V

3. R = I + V

4. V / I = R

The correct answer is: I / V = R

The formula utilized to solve for the Rate in appraisal is I / V = R. In this context: - I represents the income that is generated from a property, such as rent or other revenue. - V signifies the value or price of the property. - R stands for the rate, which is the return on investment expressed as a percentage. The formula indicates that the rate of return is determined by dividing the income by the value of the property. This relationship is fundamental in the appraisal process as it helps appraisers and investors to assess the performance of a property in financial terms. A higher rate indicates a more favorable investment, as it reflects greater income relative to the value of the property. Using the other formulas does not directly provide a clear method for isolating the rate in this context. For instance, the second formula implies that when you multiply income by the rate, you derive the value, which does not address how to specifically determine the rate itself. The third formula suggests an addition operation, which is irrelevant for calculating the rate. Lastly, the fourth formula involves division but inversely relates value and income instead of focusing on how to calculate the rate from those two amounts. Understanding the correct formula is essential for accurate appraisals and investment analysis