property valuation

CFA Level I
#1

the value of a property using the sales comparison and income approaches

I came across a question asking the value of a proerty use income approach. And the answer is calculated by the linear relationship with a comparable sales.

I thought income approach is to use income divided by proper discount rate.

Can someone explain the difference between the two methods?

Thanks.

#2

You’re correct: the income approach uses the projected income divided by a capitalization rate. The comparable sales approach is quite different.

#3

Using the income approach, isn’t it that the cap rate is equal to the projected income divided by the market value of the property?

#4

So the solution is wrong?

#5

Yes: the solution (as you stated it) is wrong.

#6

Thanks.

#7

My pleasure.