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
Are you ready to unlock the secret to reaching your ideal audience? The key is market delineation! But what what does delineate mean? Join us on this real estate journey and uncover the ...
yard lumber about 2 inches by 8 inches. ...
So, you’re out and about your homebuying dream and then you stumble upon this question: what is a condominium? Like, you think you know what is a condo home, but it's so hard to ...
We all know what income is or what gross income means, but what is adjusted gross income? When a company calculates its income to determine their taxable income, they take the gross income ...
If action is undertaken in conformity with contractual provisions, legal responsibilities arise. The concept is that the person taking action must beware. ...
In taxation, the excess of total long-term gains minus total long-term losses on the sale of real estate. Long-term classification is for real estate held one year or more. This is reported ...
Measures looking at the past, current a future direction of the economy. They may have an impact on the real estate market. Each month government bodies, including the Federal Reserve ...
English architecture. This style has two levels with the second level typically overlaying the first story. The roof is high and the chimney is sculptured. ...
When we look at title policies, there are different types of coverages offered by title companies. Figuring out which one is the best option in your particular situation often depends on ...
Have a question or comment?
We're here to help.