Which method might appraisers use when estimating the value of older properties where depreciation is significant?

The income approach is particularly suited for estimating the value of older properties where significant depreciation has occurred because it focuses on the income-generating potential of the property rather than simply the physical structure. This method estimates value based on the potential revenue the property can generate, typically through rental income, adjusted for ongoing expenses and vacancy rates. In cases where a property has a high level of depreciation, this approach allows appraisers to consider how much income the property can produce, which can often provide a more accurate reflection of its current market value.

In contrast, while the cost approach evaluates the cost to replace or reproduce the building minus depreciation, it might not adequately account for income potential, especially for older properties. The sales comparison approach relies heavily on comparable sales, which can suffer from the limitations of an aging market or a lack of suitable comparables. The replacement cost approach also takes into account the costs associated with building a new version of the property but may not effectively capture the economic realities of older properties facing severe depreciation.

Using the income approach allows appraisers to provide a value estimate that better reflects the actual financial performance of the property, making it a preferred choice for older properties facing significant depreciation.