Which property appraisal method evaluates a property's value based on the income it generates?

The Income Approach is a property appraisal method that focuses on determining a property's value based on the income it generates, particularly in the context of investment properties. This approach is grounded in the principle that the value of a property is directly related to its ability to produce income for its owners.

In utilizing this method, appraisers estimate the potential earnings a property can yield. This is typically done by analyzing factors such as rental income, operational expenses, vacancy rates, and capitalization rates, which help in converting income into property value. Investors use this information to make informed decisions about purchasing or investing in income-generating properties.

The other appraisal methods listed take different perspectives: the Cost Approach evaluates value based on the cost to replace the property, the Sales Comparison Approach assesses value based on recent sales of similar properties, and the Market Comparison Method, while similar to the Sales Comparison Approach, is less formally recognized and can involve comparative analysis but does not focus specifically on income like the Income Approach does. Therefore, choosing the Income Approach is appropriate when assessing properties that are intended to generate income.