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
A line on a map or drawing showing equal ground elevation points. See also contour map. ...
When we think of rural property or rural real estate, most of us think of farms, properties with large areas designated to agricultural land. That’s how rural communities generally ...
A deed in which two or more people in an indenture agreement have reciprocity and obligations toward each other. ...
Recording an expenditure having a benefit of more than one year to the cost of the property. ...
Gradual deterioration of land due to nature such as because of floods, hurricanes and storms. Gradual decline in the value of real estate because of poor market and economic conditions. ...
A court order issued to a defendant in an action either prohibiting or commanding the performance of a defined act. A violation of an injunction could lead to a contempt of court citation. ...
An insurer who researches the title to real estate for the purpose of discovering any unknown liens or encumbrances on the property that may have come into effect before the current ...
Fan with an opening to the outside air that lets stale or hot air exit the structure; usually used in a kitchen when cooking or in a bathroom that does not have a window. It is used for ...
An opening with a hinged cover allowing access from one level to another in a structure. Often installed in a roof or the floor of a building to allow the entrance of people and materials ...
Have a question or comment?
We're here to help.