Real estate appraisal and cap rate for the Florida exam
Last reviewed: November 2026
Appraisal is exam area XVI and carries 8% of the Florida sales associate exam. Expect questions on the three approaches to value, types of depreciation, the cap rate formula, and one Florida-specific rule: a licensee's comparative market analysis (CMA) or broker price opinion (BPO) is legal, but it may never be called an appraisal (s. 475.25(1)(t), F.S.).
The cap rate in real estate is simply net operating income divided by value. It is the core of the income approach. Divide NOI, not gross income: subtract vacancy and operating expenses first.
Appraisal vs CMA vs BPO
| Appraisal | CMA / BPO / opinion of value | |
|---|---|---|
| Who can issue it | Only a certified or licensed appraiser may issue an appraisal report (s. 475.612(1)) | A broker or sales associate in the ordinary course of business |
| Standards | USPAP, the standards adopted by the Appraisal Standards Board of The Appraisal Foundation (s. 475.611(1)(bb)) | Exempt from the appraisal standards in s. 475.25(1)(t) |
| What it may be called | Appraisal | Never an appraisal (ss. 475.25(1)(t), 475.612(3)) |
| Compensation | Allowed | A licensee may provide valuation services for compensation, but may not claim to be a certified, licensed or registered appraiser (s. 475.612(2)) |
A certified residential appraiser may appraise 1–4 residential units; a certified general appraiser may appraise any type of real property (s. 475.611(1)(k), (l)). In a federally related transaction, the appraisal report must be written (s. 475.611(1)(e)).
The three approaches to value
| Approach | Formula / idea | Best for |
|---|---|---|
| Sales comparison (market data) | Adjust the sale prices of comparable properties ("comps") to the subject | Single-family homes and vacant land |
| Cost (cost-depreciation) | Reproduction or replacement cost − accrued depreciation + land value | New buildings and special-purpose properties with few sales (schools, churches) |
| Income (capitalization) | Value = net operating income ÷ cap rate | Income-producing property |
The appraiser then reconciles the results by weighing the approach that best fits the property. Reconciliation is not an average.
Sales comparison adjustments
Adjust the comparable, never the subject. If a comp has a feature the subject lacks, subtract its value from the comp's price; if the comp lacks a feature the subject has, add it. Memory aid: "CBS" means comp better, subtract.
Depreciation
- Physical deterioration: wear and tear, such as a worn roof. Curable or incurable.
- Functional obsolescence: a design problem inside the property, such as an outdated floor plan. Curable or incurable.
- External (economic) obsolescence: a cause outside the property, such as a new highway nearby. Almost always incurable.
Land does not depreciate; only improvements do.
Cost approach example
Replacement cost new is $420,000. Using straight-line depreciation over a 50-year economic life, annual depreciation is $420,000 ÷ 50 = $8,400. After 7 years, accrued depreciation is $58,800. In a separate example where accrued depreciation is $63,000 and land is worth $110,000, the value is $420,000 − $63,000 + $110,000 = $467,000.
Cap rate formula and the income approach
Build net operating income (NOI) step by step:
| Line | Amount |
|---|---|
| Potential gross income | $120,000 |
| − Vacancy and collection loss (5%) | $6,000 |
| = Effective gross income | $114,000 |
| − Operating expenses | $41,200 |
| = Net operating income | $72,800 |
At an 8% cap rate: value = $72,800 ÷ 0.08 = $910,000. Rearranged, cap rate = NOI ÷ value, and NOI = value × cap rate. Mortgage payments (debt service) and depreciation are not operating expenses for NOI.
A higher cap rate means a lower value for the same income, and the reverse. More formulas are in real estate math for the Florida exam.
Gross rent multiplier
GRM = sale price ÷ gross monthly rent. A rental that sold for $240,000 with $2,000 monthly rent has a GRM of 120. Apply it to a similar property's rent to estimate value. When the question uses annual income, the result is called a gross income multiplier.
Exam traps
- A CMA or BPO is never called an appraisal, but a licensee may be paid for it.
- Adjust the comps, not the subject.
- Land is added back in the cost approach; it is not depreciated.
- NOI excludes debt service. Subtract vacancy before expenses.
- Functional is inside the property; external is outside and almost always incurable.
Practice question
An office building has potential gross income of $200,000, 10% vacancy and $70,000 in operating expenses. At a 10% cap rate, what is the value?
A) $1,100,000. B) $1,300,000. C) $1,800,000. D) $2,000,000.
Answer: A. $200,000 − $20,000 = $180,000; − $70,000 = $110,000 NOI; ÷ 0.10 = $1,100,000.
Test yourself
The free Florida practice test includes appraisal approaches, depreciation and cap rate math, each with a worked explanation. For more area XVI questions and timed exams, see the paid question bank.
Real Estate Drill is an independent study tool, not legal advice. We are not affiliated with FREC, DBPR, Pearson VUE or the Florida Real Estate Appraisal Board.