What is the main purpose of the Income Capitalization Approach in appraisals?

The Income Capitalization Approach is primarily used to determine the value of an income-producing property by capitalizing its net operating income (NOI). This approach is particularly beneficial for investors and appraisers when assessing properties such as apartment buildings, commercial spaces, or any real estate that generates revenue from tenants.

In this method, the net operating income—which is the revenue generated by the property minus operating expenses—is converted into a present value. This is done by applying a capitalization rate, which reflects the expected return on investment for similar properties in the market. By using this approach, appraisers can estimate what a potential buyer would be willing to pay for the property based on its ability to generate income.

While other options refer to estimating resale value, assessing overall market value, or determining historical value, they do not specifically focus on the income-generating aspect of the property, which is the essence of the Income Capitalization Approach. This makes the selected answer the most appropriate choice for understanding how this approach functions in the appraisal process.