How does the income approach to property valuation work, and when is it most commonly used in Alberta?
Correct Answer
C) It capitalizes net operating income at a cap rate; used mostly for investment and commercial properties
The income approach estimates a property's value by dividing its annual net operating income (NOI) by an appropriate capitalization rate derived from market data. In Alberta, this approach is most commonly used for commercial, office, retail, and multi-family investment properties where rental income drives the property's value.
Why This Is the Correct Answer
The income approach capitalizes net operating income using a market-derived capitalization rate to estimate value. Under Alberta assessment practice and standard appraisal methodology, this approach is most appropriate for commercial, office, retail, and multi-family investment properties where rental income is the primary value driver. The formula is: Value = NOI / Cap Rate.
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