Property Valuation
The income capitalization approach is most often used to appraise:
ASingle-family owner-occupied residences
BIncome-producing properties such as apartment buildings and commercial real estate✓ Correct
CVacant land with no improvements
DSpecial-purpose properties such as museums
Explanation
The income capitalization approach is the primary valuation method for income-producing properties (apartments, office buildings, retail centers). It converts projected future income into a present value estimate using a capitalization rate.
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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.
Comparable Sales (Comps)Recently sold properties similar in size, condition, and location used by appraisers and agents to estimate a property's market value.
AppraisalA professional estimate of a property's market value prepared by a licensed or certified appraiser.
Gross Rent Multiplier (GRM)A quick valuation metric for income properties calculated by dividing the property price by gross annual rental income.
Math Concepts
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