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Chapter 1 Overview - The Income Approach To Value

This document introduces a learning session on using the income approach to value property for tax assessment purposes. It will cover the basic principles and steps of the income approach, including deriving capitalization rates and converting income streams to estimates of value. The session aims to help appraisers properly apply the income approach according to California rules and guidance from the state's Assessors' Handbook.

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55 views

Chapter 1 Overview - The Income Approach To Value

This document introduces a learning session on using the income approach to value property for tax assessment purposes. It will cover the basic principles and steps of the income approach, including deriving capitalization rates and converting income streams to estimates of value. The session aims to help appraisers properly apply the income approach according to California rules and guidance from the state's Assessors' Handbook.

Uploaded by

Toast
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Lesson 1: Overview - The Income Approach to Value http://www.boe.ca.gov/info/iav/index.

htm

Lesson 1: Overview - The Income Approach


to Value

California State Board of Equalization

Lesson 1: Overview
This lesson serves as an introduction to the topic and discusses the following:

Elements and Objectives of Learning Session


Learning Session Format
Assessors' Handbook Guidance
Prerequisites

Elements and Objectives of Learning Session


There are three major appraisal approaches for estimating value: the cost
approach, the comparative sales approach, and the income approach. The focus of
this training is on the income approach. The income approach to value is
applicable when the property being appraised is typically purchased in
anticipation of the income it will produce (commonly referred to as income
producing property.) Property Tax Rule 8, which will be discussed in Lesson 5,
prescribes the conditions under which the income approach may be applied.

This learning session is designed to equip appraisers with an understanding of the


fundamental principles of valuing property for ad valorem property tax purposes
using the income approach to value; ad valorem meaning according to value. It
explains the basic assumptions of the income approach to value and various steps
in the valuation process. It discusses capitalization techniques used to derive rates
and estimates of value.

This learning session is intended for participants that are familiar with the basic
appraisal procedures for valuation of property in California. This session provides
specific instruction on the income approach to value. To put it simply, when using
the income approach, an appraiser values an income property by computing the
present worth of a future income stream.

After the successful completion of this session, you will understand:

The application of the income approach to valuing property


Principles and assumptions associated with the income approach
The provisions of Property Tax Rule 8
Components and shapes of an income stream
How to derive income multipliers and capitalization rates to use in valuation
Methods of converting an income stream to value

Learning Session Format


In this learning session, instruction is provided through structured reading and
illustrated examples. To assist in attainment of the learning objectives, various
examples are incorporated within the lessons to illustrate the concept being

1 of 2 8 Nov 2019, 4:32 pm


Lesson 1: Overview - The Income Approach to Value http://www.boe.ca.gov/info/iav/index.htm

discussed. Additionally, demonstrations are used in certain lessons to show more


complex topics, or to tie related subjects together. Questions and exercises are
available at the end of each session to be worked by participants (herein referred
to as students) to ensure comprehension of concepts and calculations discussed in
the lesson. In completing the questions and exercises in the “Check Your
Knowledge” section, students are to print the section and answer all the questions
and exercises before reviewing the solutions. A final exam is also available at the
conclusion of this session in order that certified property tax appraisers of
California county assessor's offices may demonstrate their overall comprehension
of the subject matter, attest to their participation in the training, and receive
training credit for completing the learning session. Passage of this learning
session in conjunction with a timed note examination administered by BOE will
count toward advanced appraiser certification by means of completion of a
prescribed course of study.

Assessors' Handbook Guidance on Income Approach


The Assessors' Handbook is a series of manuals developed by the Board of
Equalization (BOE). The Assessors' Handbook serves as a guide for the appraisal
and assessment of real and personal property for property tax purposes and is
intended to promote uniformity of assessment in California. All Assessors'
Handbooks are available on the BOE's website and can be accessed through the
Assessors' Handbook.

Assessors' Handbook Section 501 (AH 501), Basic Appraisal, provides guidance
on the basic principles of real and personal property appraisal for property tax
purposes. It discusses the theory of value, standard of value for property tax
purposes, taxable value, measurement of value, and the approaches to value.

Chapter 6 of AH 501 focuses on the various approaches to value, one of which is


the income approach to value, which is the topic of this learning session.
Participants are encouraged to read pages 95 through 109 of AH 501, which will
be cited and referenced throughout this learning session. AH 501 is available on
the BOE's website and can be accessed via the Assessors' Handbook Section 501.

In addition to the AH 501, Assessors' Handbook Section 502, Advanced


Appraisal, discusses the income approach to value on pages 55 through 107. AH
502 is available on the BOE's website and can be accessed via the Assessors'
Handbook Section 502. Please note that the focus of this self-paced online
learning session is not on advanced concepts presented in AH 502. The focus is
on the material presented in this learning session.

Prerequisites
None.

Summary
This learning session consists of 20 lessons providing fundamental information
on the income approach to value. Please proceed to lesson 2, which discusses
appraisal principles.

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