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
The imposition or collection, usually by legal or governmental authority, of an assessment of a specified amount. An example is a tax assessment on real estate. ...
What does Act of God mean? Acts of God or “force majeure” is typically how an insurance policy classifies peril situations that could not be prevented or defended by men. ...
Mortgage loan not insured or guaranteed by a governmental agency such as the Federal Home Administration or the Veterans Administration. This type of loan is repayable in fixed monthly ...
When a property owner defaults on his or her tax payments, the taxing jurisdiction may force a liquidation of the property or tax sale for the purpose of collecting the owed real estate ...
Millennials – also known as Generation Y, because they come after the so-called Generation X - is a term coined for a generational extract of people born at the end of the first ...
List of records kept of what is owned by an individual such as the deed to a house and the title to land. ...
If you’re an owner of a property that needs to be accounted for in your return on investment or used to calculate your capital gains and losses, then the cost basis will help you ...
A right or interest in property held by a third party, which often limits the use and diminishes the value of the property, but usually does not prevent the transferring of title. The more ...
One who represents a zone such an elected leader of a region. He or she have dealings with the county's officials in matters affecting that zone. ...
Have a question or comment?
We're here to help.