What is a key characteristic of the income approach in appraisal?

The income approach in appraisal is fundamentally centered on the potential income that a property can generate in the future. This approach is typically employed for investment properties, where the earnings potential is a critical factor in determining value. By assessing the expected rental income, operating expenses, and capitalization rates, appraisers can estimate the property's value based on its capacity to generate revenue.

This method contrasts with other approaches, such as the sales comparison approach, which focuses on the physical attributes or recent sales of comparable properties, and the cost approach, which may consider replacement costs without necessarily factoring in income potential. The emphasis on future income makes this approach particularly relevant for investors and lenders who need to understand the economic viability of a property.

Choosing the future income potential as a key characteristic correctly reflects the essence of the income approach in appraisal.