Property Valuation
The income capitalization approach to value is most appropriate for:
ASingle-family residences
BIncome-producing investment properties✓ Correct
CVacant land
DNew construction
Explanation
The income capitalization approach estimates value based on the property's ability to generate income (NOI ÷ cap rate), making it most suitable for investment properties.
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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.
Net Operating Income (NOI)The annual income generated by an income-producing property after subtracting operating expenses, but before debt service.
Gross Rent Multiplier (GRM)A quick valuation metric for income properties calculated by dividing the property price by gross annual rental income.
Comparable Sales (Comps)Recently sold properties similar in size, condition, and location used by appraisers and agents to estimate a property's market value.
Math Concepts
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