The land capitalization rate reflects the relationship between what two factors?

The land capitalization rate is a crucial concept in real estate valuation, especially when assessing the value of unimproved land. This rate specifically reflects the relationship between land income and land value.

When appraisers use the capitalization rate, they determine how much income the land can generate, often through leases or agricultural use, and they compare this income to the current value of the land. The formula essentially represents how much investors are willing to pay for that income stream generated by the land.

For example, if a piece of land generates $10,000 a year in income and its market value is $100,000, the capitalization rate would be calculated as follows: $10,000 income divided by $100,000 land value gives a capitalization rate of 10%. This figure helps investors understand potential returns on investment and assess the viability of purchasing that land.

The other options do not accurately capture this specific relationship. Land income must be directly assessed against land value to establish a capitalization rate, which is why this choice is the correct understanding of the concept.