Real Estate Appraisal Practice Exam

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Study for the Real Estate Appraisal Exam. Prepare with flashcards and multiple choice questions, each question offering hints and explanations. Get ready for your exam!

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A property generates $30,000 per year with a total valuation of $400,000. What is the capitalization rate?

5%
7.5%
10%
12.5%

The correct answer is: 7.5%

To find the capitalization rate, you divide the annual income generated by the property by its total valuation. In this case, the property generates $30,000 annually and has a total value of $400,000. The formula to calculate the capitalization rate is: Capitalization Rate = Annual Income / Total Value Plugging in the numbers gives: Capitalization Rate = $30,000 / $400,000 = 0.075 To express it as a percentage, multiply by 100, resulting in a capitalization rate of 7.5%. This percentage reflects the expected return on investment for the property, influencing decisions made by investors and appraisers alike. Understanding how to properly calculate the capitalization rate is crucial for making informed investment choices in real estate.