Direct answer
What does income capitalization approach mean?
The income capitalization approach is a valuation approach that converts a property's income expectations into an indication of value.
Exam cue: Use market-supported income, vacancy, expenses and a capitalization method appropriate to the question.
What does it look like in a question?
Example
An investor analyzes stabilized NOI and a market cap rate for an apartment property.
Common exam trap
What should you not confuse it with?
Gross income is not NOI, and financing costs are not operating expenses in the standard formula.
Related valuation terms
AppraisalAn appraisal is an opinion of value developed by a qualified appraiser for an identified use, property interest and effective date.CapitalizationCapitalization is the process of converting income into an indication of value.ComparableA comparable is a property used as market evidence because it is sufficiently similar to the property being analyzed.Comparative market analysisA comparative market analysis (CMA) is a broker's analysis of relevant market data to help a seller or buyer consider a probable price range.Cost approachThe cost approach is a valuation approach that adds land value to the depreciated cost of the improvements.DepreciationDepreciation is a loss in property value from physical deterioration, functional obsolescence or external obsolescence in appraisal.
Sources used2 references with section locators
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Put the term back into its full subject.
A definition helps with recall. The subject guide shows how the rule interacts with documents, scenarios, calculations and practice questions.