the most common method for determining the terminal value of the property is the Direct Capitalization Method.
By dividing the cumulative income by the respective capitalization rates applied over the same time period, the direct capitalization technique is calculated. By dividing net operating income by asset value, the cap rate is calculated.
Due to its excessive reliance on the revenue from the property, the direct capitalization approach is inappropriate for owner-occupied properties. The quotient value is greatly decreased by an increase in cap rate. Therefore, a decline in the cap rate indicates an increase in the property's market value. As a result, the cap rate is indirectly proportional to the market value that must be determined.
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