What type of valuation method is commonly used for commercial properties?

The income approach is commonly used for valuing commercial properties because it focuses on the potential income that a property can generate over time. This approach is especially relevant for income-producing real estate, such as office buildings, shopping centers, and rental apartments, where the value is largely derived from the rental income and the overall financial viability of the property.

In applying the income approach, assessors typically gather data on the current market rents, vacancy rates, operating expenses, and the capitalization rate, which reflects the investor's expected return on investment. By estimating the net operating income (NOI) and applying a capitalization rate to that income, assessors can determine a value that reflects the property's ability to generate income. This method aligns well with the interests of investors and lenders, as they are primarily concerned with the revenue-generating potential of the property.

The other valuation methods, while useful in certain contexts, do not focus as directly on the income aspect. The sales comparison approach is more commonly used for residential properties, where sales data is readily available and provides a direct comparison to similar properties. The cost approach, which calculates the value based on the costs to replace or reproduce the property, may also be applicable but does not capture the ongoing income potential as directly as the