The income approach is often given primary emphasis when appraising a commercial real estate used to generate income. Estimates of value via the income approach are highly sensitive to changes in revenue, expense and capitalization rates.
Correctly performing a cost approach analysis appears to be and is technically difficult. It appears easy to correctly prepare an income approach analysis for commercial real estate. However, correctly preparing the analysis requires three criteria: 1. an understanding on the type of value, 2. accurate data, 3. accurate application of the income approach.
