"Income Approach" no longer acceptable terminology?

[Roger Murdock]

On a recent appraisal review we got a comment that the "Income Approach" is now known as the "Income Capitalization Approach". Has anybody heard of this? If so, what is this new rule based on? I find it hard to imagine that there is in fact any such requirement.

 

[Ted Martin]

Shorthand versus long winded section heading, analysis is the same even though the reviewer wants to call a duck a goose. Both have the same webbed feet.

 

[Ken B]

If that is the only thing that a reviewer can find "wrong" with the report, you did a great job.

 

[David Wimpelberg]

"Income Approach" is general; "Income Capitalization Approach" is more specific. "Income Capitalization Approach" is not a substitute for "Income Approach." The most obvious example is one can use a multiplier (inverse of cap rate) to arrive at the same result. In that case, "Income Capitalization Approach" would be inappropriate. There are also many applications of the income approach, say DCF, where that terminology would be inappropriate.

 

[Mountain Man]

That's what I was thinking David, I don't always use the Capitalization method... sometimes we use the Discounted Cash Flow, or the Gross Rent Multiplier on small residential rentals.

 

[The Matrix]

If you are using a cap rate to convert an income stream into a value you are using the "income capitalization approach" -"The Income approach" is just a broader term which encompasses several possible methods of converting income streams into a value indication.

 

[stefan olafson]

It sounds like a reviewer is creating job security. The Income Approach is still one of the three 'big' approaches to value and within this approach is the capitalization method of deriving a value.

If that's all the reviewer found, then you truly did an excellent job on the appraisal.

 

[George Hatch]

USPAP refers to the "Income Approach". I'd say your reviewer is in error.

 

[Roger Murdock]

Thanks for the input everyone. I didn't think there was anything to it, but I had to ask.

 

[JT1974]

Next time the reviewer will probably tell you its the Sales Comparison Approach and not the Sales Approach. Be ready!!!