Certified Residential Appraiser Practice Exam

Which rate reflects the ratio of one year's income to the value of the property?

1. Yield Rate

2. Overall Yield Rate

3. Income Rate

4. Safe Rate

The correct answer is: Income Rate

The income rate is a specific measure used in property valuation that represents the ratio of one year’s income generated by a property to its total value. It is derived from the income approach to appraisal, which focuses on the potential income that a property can generate. In this context, the income rate allows appraisers to estimate the value of an income-producing property by capitalizing its expected income—essentially converting future income into present value. It is calculated by taking the property’s annual net income and dividing it by the property’s value. Thus, the income rate reflects the gross return that an investor can expect from the property on an annual basis. Understanding this concept is crucial for appraisers, as it helps them assess the investment potential of a property based on its income-producing abilities, which is often a key aspect for buyers and investors when making decisions.