Property Valuation
What is the 'income approach' to real estate valuation and when is it most appropriate?
AEstimating value by adding land value to the depreciated cost of improvements
BEstimating value based on the income the property can generate — most appropriate for income-producing properties such as apartments, office buildings, and retail centers✓ Correct
CEstimating value based on recent sales of comparable properties
DEstimating value based on the owner's income and ability to pay
Explanation
The income approach estimates value by capitalizing the property's net operating income (NOI) using a market capitalization rate (Value = NOI ÷ Cap Rate). It is most appropriate for income-producing properties where buyers are primarily motivated by investment return — such as rental apartments, commercial buildings, and industrial properties.
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