Alabama Real Estate Practice Exam

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Prepare for the Alabama Real Estate Exam. Utilize flashcards and multiple-choice questions, each coupled with hints and explanations. Ace your upcoming test!

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How do you determine the value of a property using the capitalization rate?

  1. NOI + Sales price

  2. NOI / Capitalization rate

  3. NOI * Capitalization rate

  4. Capitalization rate / NOI

The correct answer is: NOI / Capitalization rate

The capitalization rate is used to determine the value of a property by dividing the property's net operating income (NOI) by the capitalization rate. Option A, adding the sales price to the NOI, is incorrect because the sales price is not a factor in calculating the capitalization rate. Option C, multiplying the NOI by the capitalization rate, is incorrect because this would result in a higher value than the actual property value. Option D, dividing the capitalization rate by the NOI, is also incorrect because it would result in a value that is too low. Therefore, option B is the correct way to determine the value of a property using the capitalization rate.

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