Direct answer
What does Capitalization mean?
The process of converting income into an indication of value.
Exam cue: Direct capitalization commonly divides stabilized net operating income by a market-derived capitalization rate.
What does it look like in a question?
New York example
Annual NOI of $60,000 divided by an 8 percent rate indicates $750,000.
Common exam trap
What should you not confuse it with?
Capitalization rate is not a mortgage interest rate.
Related valuation terms
AppraisalAn opinion of value developed by a qualified appraiser for an identified use, property interest and effective date.ComparableA property used as market evidence because it is sufficiently similar to the property being analyzed.Comparative market analysisA broker's analysis of relevant market data to help a seller or buyer consider a probable price range.Cost approachA valuation approach that adds land value to the depreciated cost of the improvements.DepreciationA loss in property value from physical deterioration, functional obsolescence or external obsolescence in appraisal.External obsolescenceA loss in value caused by influences outside the property.
Sources used2 references with section locators
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