What is the most common method of site evaluation?

• A. The cost approach
• B. The income capitalization method
• C. The comparative sales method
• D. The land residual method

Answer: (B)

Valuing land by the income it can generate. When assessing a site, the income capitalization method looks at the potential net income the site could produce if developed and leased, then converts that income into value using a market capitalization rate. This ties the land’s worth directly to its earning power, which is why investors and developers rely on it to judge feasibility and compare sites. You estimate rents, occupancy, operating expenses, and management costs to get net operating income, then divide by the cap rate to derive value. The other approaches serve different purposes: the cost method focuses on replacement costs, the comparative sales method uses recent land sales as benchmarks, and the land residual method subtracts development costs from projected value to isolate land value. But for determining site value based on income potential, the income capitalization method is the standard approach.