What type of appraisal involves estimating the value based on income generated by a property?

The type of appraisal that estimates the value based on the income generated by a property is known as the income approach. This method is particularly relevant for income-producing properties, such as apartment buildings, office spaces, and retail centers, where the primary interest of investors is the potential income that the property can generate.

The income approach operates on the principle that the value of a property is fundamentally linked to its ability to produce income. This approach typically involves calculating the net operating income (NOI) of the property and applying a capitalization rate to determine its value. Investors and appraisers use this method to assess how much a property should be worth based on the income it generates, which helps in making informed investment decisions.

In contrast, the cost approach focuses on estimating the value based on the cost to replace or reproduce the property. The sales comparison method relies on comparing similar properties that have recently sold to gauge value. Market analysis encompasses a broader assessment of real estate trends and market conditions without a direct focus on income generation. These differences highlight why the income approach is the correct answer for valuing properties based on income potential.