In what scenario would an appraiser use the income approach?

The income approach is specifically designed for properties that produce income, which makes it the most applicable method when valuing a property that generates rental income. This approach focuses on the ability of the property to generate cash flow, applying principles such as capitalization rates to determine its value based on the income it produces. This is particularly relevant for investment properties, such as apartment buildings, office spaces, or commercial properties, where cash flows from rents are critical to the value assessment.

In contrast, estimating the cost of recent renovations pertains more to the cost approach, which calculates value based on the costs involved in improvements. Similarly, assessing property for tax purposes typically involves mass appraisal techniques that may not rely solely on the income-generating potential of each property. Evaluating a personal residence often involves the sales comparison approach, where recent sales of similar homes are considered, as personal residences are seldom assessed on an income generation basis. Hence, the income approach is best suited for scenarios involving income-producing properties.