What represents the present value of anticipated income in real estate appraisal?

The income approach is the method that represents the present value of anticipated income in real estate appraisal. This approach is particularly relevant for investment properties, as it focuses on the income-generating potential of a property rather than its physical characteristics or replacement costs.

In this approach, appraisers estimate the future income that the property can generate, typically by looking at historical rental income, current lease rates, and occupancy levels. They then determine the present value of that future income stream by applying a capitalization rate, which reflects the risk associated with the investment and the market conditions. This allows investors to assess whether the property provides a favorable return compared to other potential investments.

In contrast, the cost approach evaluates the value of a property based on the cost to replace it, while the market approach compares the subject property to similar properties that have sold recently to derive value. The sales comparison approach also emphasizes recent sales data to estimate value, focusing on comparable properties. While these methods have their merits, they do not specifically measure the present value of anticipated income, which is the defining feature of the income approach.