Income Approach
Definition of "Income approach"
When doing an Appraisal, the Appraiser has several methods to get to his/her Market Value evaluation and obtain a number regarding that property’s market value. The Income Approach is one of them.
The income approach is regularly used in the Commercial Real Estate Market. Here’s why:
Let’s say an appraiser was hired to evaluate a retail facility. If the appraisal only evaluates the building itself and similar properties in the region… it might not be sufficient. What if it’s the only retail store in that area? To get to a more effective appraisal, the appraiser has to also use the income approach and take into consideration the income that facility produces – and can still produce in the future - to its owner.
Some people also call it “capitalization approach” and one of the ways to assert it would be something like:
Market value = Expected annual income / Capitalization rate
For example: a rental property is anticipated to generate future annual income of $50,000 and the capitalization rate is 8%. Then, market value = $50,000/.08 = $625,000.
Real estate secrets:
Approach our real estate Glossary Terms to learn other types of Appraisals!
Or search The OFFICIAL Real Estate Agent Directory® and find a real estate agent for you!
Popular Real Estate Terms
Opening in the wall of a structure to let in air and light. ...
material placed on the outside surface of a structure such as aluminum or vinyl siding on a house. It is cost-efficient because it eliminates the need for repeated painting. Siding provides ...
Latin term meaning something in exchange for something else. For example, a person rushes through an order for another in return for having first choice in selecting a parcel of ...
The definition of debt coverage ratio (DCR) or debt-service coverage ratio (DSCR) is on the pages of all finance coursebooks. It reveals the ability of an individual - but most ...
Certificates that pass-through principal and interest payments to investors. ...
Upon satisfaction of a mortgage or other debt payments, the deed releases property, or a portion of it, form the incumbrance. Often it is used in circumstances where a deed of trust is ...
Also called earnest money. Money deposited with an individual for security for the performance of some contract. This is intended to show his/her willingness to follow through with the ...
Con can mean the downside of any relevant aspects that need to be weighed and evaluated before any decision is made. For example, there are pros and cons to living near an airport and one ...
Grades have various definitions related to real estate and surveying land. Let’s have a look at the most common meanings of grades you’ll encounter in everyday life! Grades ...
Have a question or comment?
We're here to help.