What effect does using a 12% capitalization rate instead of a 10% rate have on a property with a net income of $30,000?

To determine the effect of using a 12% capitalization rate instead of a 10% rate on the appraised value of a property with a net income of $30,000, you can employ the capitalization rate formula:

Value = Net Income / Capitalization Rate.

Using a capitalization rate of 10%, the calculation would be:

Value at 10% = $30,000 / 0.10 = $300,000.

Now, applying a capitalization rate of 12%, the calculation becomes:

Value at 12% = $30,000 / 0.12 = $250,000.

The difference in value is then calculated by subtracting the lower value from the higher value:

$300,000 - $250,000 = $50,000.

When the capitalization rate increases from 10% to 12%, the value of the property decreases. The decrease in appraised value is $50,000, highlighting how a higher capitalization rate reflects a lower perceived value of an income-generating property. Therefore, selecting this option accurately represents the financial implications of adjusting the capitalization rate in real estate appraisals.