Which approach is typically used for valuing commercial properties?

The Income Approach is typically used for valuing commercial properties because it focuses on the income-producing potential of the property. This method calculates value based on the net income that the property generates, often referred to as the capitalization rate. Investors are particularly interested in how much income they can expect from a property before making a purchase, making this approach especially relevant in commercial real estate.

This approach takes into account current and projected rental income, operating expenses, and potential future income streams. It's particularly valuable for properties like office buildings, shopping centers, and apartment complexes where income generation is a primary concern for buyers and investors.

Although other approaches, such as the Sales Comparison Approach and the Cost Approach, are also used in property valuation, they are more commonly applied to residential properties or in specific circumstances where income generation is not the primary focus. The Sales Comparison Approach examines comparable properties that have recently sold, while the Cost Approach estimates the value based on the cost to replace or reproduce the property, minus any depreciation. The Adjusted Sales Approach is not a standard method recognized in the industry, making it less relevant to this question.