Question

When an appraiser analyzes rent using the income approach, he should base his appraisal on which characteristic of the income?

Selections

A. Durability

B. Quality

C. Quantity

D. All of the above

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Answer: D

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5 Keys Summary

• The Income Approach (or Capitalization Method) estimates a property’s present value based on the future economic benefits or anticipated income stream it is expected to generate.

• To accurately value income-producing property, an appraiser must analyze all characteristics of the income, specifically Quantity, Quality, and Durability.

• Quantity refers to the dollar amount of rent generated, which is crucial for determining the Net Operating Income (NOI) by calculating the potential gross income minus vacancies and operating expenses.

• Quality relates to the reliability of the income stream, typically assessed by the creditworthiness and financial stability (credit rating) of the tenant.

• Durability concerns the stability and duration of the income, meaning the length of the current lease agreements (e.g., a long-term lease has greater durability than a month-to-month tenancy).

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