Property Valuation
The income approach to value is most commonly used to appraise:
ASingle-family homes in Vermont ski resort areas
BIncome-producing properties such as apartment buildings and commercial properties✓ Correct
CRaw land with no income potential
DHistoric properties with preservation restrictions
Explanation
The income approach converts a property's income stream into a value estimate using capitalization. It is the primary approach for income-producing properties where investors are purchasing the right to future income.
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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.
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