Capitalization is employed in which of the following approaches?

Capitalization is employed primarily in the income approach, especially for income properties. This approach focuses on estimating the present value of future income generated by the property. Capitalization involves converting future income streams into a valuable present value through the application of an appropriate capitalization rate.

In the income approach, appraisers analyze the potential income a property can generate, typically in the form of rents, and apply the capitalization rate to determine its value. This rate reflects the investor's required rate of return, taking into account factors like the risk associated with the property and the market conditions.

The cost approach, on the other hand, focuses on estimating the value of a property based on the costs of constructing a similar property minus depreciation. The direct sales comparison approach involves comparing the subject property to similar properties that have recently sold, relying on market data rather than income generation. While residential properties may generate income, they are more commonly evaluated using sales comparison rather than the pure income method unless they are specifically investment properties.