Which of the following is the preferred method of deriving a capitalization rate?

The preferred method of deriving a capitalization rate is the direct comparison method. This approach involves examining actual sales of comparable properties that have recently sold, allowing appraisers to estimate the capitalization rates based on market data. By analyzing these comparable transactions, appraisers can derive a capitalization rate that accurately reflects the current market conditions and the risk associated with similar investment properties.

Utilizing direct comparison is beneficial because it accounts for variations in attributes, such as location, type of property, and economic conditions that influence investor behavior. This method relies on real market evidence rather than theoretical calculations or hypothetical scenarios, making it a more reliable reflection of what investors are actually willing to pay for property.

The other methods listed may have their applications, but they do not provide the same level of market relevance as direct comparison. For instance, the summation method involves aggregating various components to arrive at a rate but lacks the direct market-based evidence that supports capitalization rate estimates. The band of investment method, while useful in certain circumstances, typically combines different financing components and may not adequately reflect current market trends. The phrase "Bank of investment" seems to be a misinterpretation or typographical error, as it does not correspond to a recognized method in appraisal practice.

In summary, direct comparison is