Property Valuation
The income approach to value is most commonly used to appraise:
ASingle-family residences
BIncome-producing properties such as apartments✓ Correct
CVacant land
DSpecial-use properties such as churches
Explanation
The income approach is most appropriate for income-producing properties like apartments, office buildings, and retail centers, because value is derived from the income the property generates.
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Key Terms to Know
Capitalization Rate (Cap Rate)
A rate used to estimate the value of income-producing property, calculated as Net Operating Income divided by property value.
Gross Rent Multiplier (GRM)A quick valuation metric for income properties calculated by dividing the property price by gross annual rental income.
Net Operating Income (NOI)The annual income generated by an income-producing property after subtracting operating expenses, but before debt service.
Comparable Sales (Comps)Recently sold properties similar in size, condition, and location used by appraisers and agents to estimate a property's market value.
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