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
An adversary hearing allows both parties to an issue to present their views. A public procedure performed by an administrative or legislative body to investigate certain matters and ...
The right of possession and use of property without undue disturbance by others or adverse claims of others to title or interest. ...
Individual who has a legal obligation to pay money to another. ...
A property title evidencing ownership such as provided in an abstract of title. There are no contingent liabilities or prior unresolved ownership claims. ...
percentage relationship of a specific part of property to the whole property. An example is the square footage of one office to the square footage of all offices in an office building. ...
Increasing prices during a slowdown in economic activity. ...
Property used consistently for many years by someone without challenge from the owner. Easement resulting from law such as the reasonable expectation that a purchaser of one or two ...
An agreement by which a mortgage is made subject to a junior mortgage. For example, a loan on a vacant lot is made subject to a subsequent construction loan. ...
Absence of a personal liability such as when a creditor may seize an office building used as security for the obligation but cannot attach any other assets of the debtor. ...
Have a question or comment?
We're here to help.