What represents the present value of a property in the income approach?

In the income approach to property valuation, the present value of a property is determined by capitalizing the expected future income it will generate. This method focuses on the income-producing potential, which reflects the financial returns an investor could expect from the property.

The correct response indicates that the adjusted annual net income is converted at an expected interest rate. This process involves calculating the net operating income (NOI) of the property, which includes all income generated minus operating expenses. By applying a capitalization rate (derived from the expected return on investment), the NOI is then transformed into a present value, representing what an investor would be willing to pay today for that future cash flow stream.

Other options, while relevant to property assessments, do not reflect the direct methodology used in the income approach. The construction cost less depreciation pertains more to the cost approach, the market value of land alone doesn’t consider the income potential of the property as a whole, and historical sale prices do not reliably indicate current market value, especially in a dynamic market. The focus on present income potential is what distinguishes the correct choice as the basis for valuation in the income approach.