Property Valuation
What is the 'income capitalization approach' and when is it the preferred valuation method?
AAn approach for owner-occupied residential properties
BAn approach that converts a property's income into a value estimate; preferred for income-producing properties like apartment buildings, offices, and retail✓ Correct
CAn approach that estimates the capital investment needed to develop a property
DAn approach used only for land, not for improved properties
Explanation
The income capitalization approach estimates value by converting a property's net operating income into a value estimate using a capitalization rate (direct capitalization) or by discounting projected future cash flows (yield capitalization/DCF). This approach is most appropriate for income-producing properties where buyers are primarily motivated by the income potential.
Related Illinois Property Valuation Questions
- Functional obsolescence in a property appraisal refers to:
- Which of the following is an example of economic (external) obsolescence in a residential property?
- A property manager is computing a capitalization rate for investment analysis. Which of the following correctly describes the capitalization rate?
- The income capitalization approach to value is most commonly used for:
- An appraisal of a single-family home for a conventional purchase mortgage must typically be performed by:
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- In an appraisal, 'effective age' is different from 'actual age' because effective age reflects:
- What is 'scope of work' in an Illinois appraisal assignment?
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