Property Valuation
What is the 'income capitalization approach' and when is it most appropriate for Pennsylvania property valuation?
AAn approach suitable for all Pennsylvania properties regardless of use
BA valuation approach estimating value by dividing NOI by the cap rate, most appropriate for income-producing properties (apartments, offices, retail, industrial) where investors make purchase decisions based on income✓ Correct
CAn approach used exclusively for government and institutional properties
DA valuation technique for properties with negative income (operating at a loss)
Explanation
The income capitalization approach (direct capitalization or DCF analysis) is the most relevant method for Pennsylvania income-producing real estate: apartment complexes, office buildings, retail centers, and industrial properties. Investors value these properties based on their income-producing capacity. The direct cap method divides NOI by the market cap rate; DCF analysis projects future cash flows and discounts them to present value. For owner-occupied residences, the sales comparison approach is typically most appropriate.
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