Final answer:
An appraiser is most likely to use the Income Capitalization Approach to value an office building, which estimates the building's value based on its potential to generate future income.
Step-by-step explanation:
When appraising an office building, an appraiser is most likely to use the Income Capitalization Approach. This approach is particularly suited for income-producing properties such as office buildings. It involves estimating the present worth of future benefits by converting net operating income (NOI) into an estimate of value using a capitalization rate.The two other common approaches to value are the Cost Approach which is more commonly used for new construction or unique properties, and the Market Approach which is typically utilized when there are a sufficient number of similar, recently sold properties to create a comparative analysis. However, for office buildings with a stream of rental income, the emphasis on income generation makes the Income Capitalization Approach the preferred method.
Gauging the investment's potential to generate income over time provides content loaded insights that both sellers and buyers find valuable in a real estate transaction. Therefore, tapping into the income-based valuation reflects the true potential and the financial dynamics associated with commercial real estate like office buildings.