Which of the following approaches is used to estimate the value of a property based on its income?

The capitalization rate approach is utilized to estimate the value of a property based on its income-generating potential. This method is particularly relevant for investment properties where income plays a crucial role in determining value. By assessing the net operating income (NOI) of a property and dividing it by an appropriate capitalization rate, one can ascertain how much an investor might be willing to pay for that property based on its income.

This technique considers the income the property generates compared to the risk associated with that income. It effectively provides a measure of the expected return on investment, making it a critical tool in commercial real estate appraisal and valuation.

In contrast, the cost approach focuses on the cost of replacing or reproducing the property’s physical improvements while subtracting depreciation, which is more about physical attributes than income. The market value approach analyzes comparable sales to determine a property's worth based on what similar properties have sold for, rather than its income potential. Lastly, the community approach is not a standard valuation method recognized in property appraisals and does not specifically relate to income estimation.