1. The principle that value is the present worth of expected future benefits, which underlies the income approach, is:
Answer & explanation
Answer: B. Anticipation: buyers/investors pay today for anticipated future income or benefits.
valuation
income approach
The income approach estimates the value of income-producing property by converting its expected income into a present value. In direct capitalization, the appraiser divides net operating income by a capitalization rate. For smaller residential rentals, a gross rent multiplier may be used instead. It is the primary method for apartments, offices, and retail properties.
- Exam tip
- Remember IRV: Income equals Rate times Value, so Value equals NOI divided by cap rate. A higher cap rate produces a lower value.
- Example
- A building produces $80,000 in net operating income; at an 8 percent cap rate, its estimated value is $80,000 / 0.08, or $1,000,000.
Related terms & state variants
Sources
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Last verified: 2026-10-23