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
Statement made verbally. It is better legally to have a written statement because verbal ones without witnesses may be denied. ...
The adjusted sales price is also known as price adjustment or adjustment in appraisals. A definition for the adjusted sales price is the appraisal determined through the market approach or ...
A person has the option of canceling a contract previously agreed to. ...
property use which is in violation of the current zoning ordinance, but had been in use prior to the zoning ordinance's enactment. A nonconforming use is normally allowed to continue; ...
Site where mobile homes are located. Mobile home parks are often mandated by municipal zoning laws. They provide necessary utilities to the mobile homes often including recreational ...
Regular pattern of expansion (recovery) and contraction (recession) in total economic activity surrounding a growth trend, including the impact of economic variables such as employment and ...
Metal or wood channel attached immediately below or along the eaves of a building for the purpose of channeling rainwater away from the structure. The gutter prevents rain runoff from ...
Not sure about something such as suspecting the truthfulness of statements made by a real estate agent. Stipulation in a deed giving the grantor some retained privilege or right in the ...
Designing a home with a Spanish cultural flavor. ...
Have a question or comment?
We're here to help.