What does the IRV formula stand for in relation to valuation?

The IRV formula stands for "Income/Rate/Value," and it is a fundamental concept in property valuation, particularly within the income approach. This approach is utilized primarily for income-producing properties, where the value of the property is determined based on the income it generates.

In the context of the formula, "Value" refers to the actual worth of the property, "Income" represents the expected income that the property can generate, and "Rate" signifies the capitalization rate, which is a percentage that represents the return on investment that an investor expects. The formula succinctly illustrates the relationship between these three components, helping appraisers and investors to derive an estimate of value by rearranging it as follows: Value = Income / Rate.

This makes the IRV formula essential in real estate assessments because it allows for a systematic evaluation of how much income a property can produce, ultimately translating that into a measurable value based on the investor's required rate of return. This connection is foundational in the valuation process for properties that yield rental income or other forms of revenue.