Which term means converting property's income into estimated value?

• A. Capitalization
• B. Contribution
• C. Competitive Market Analysis
• D. Demand

Answer: (A)

Capitalization is the process of turning a property's income into an estimate of its value. For income-producing properties, value is obtained by applying the capitalization rate to the net operating income (NOI). NOI is the annual income after vacancy and operating expenses, but before debt service and taxes. The standard formula is value = NOI divided by the cap rate. This method directly links the income stream to value, which is why the term capitalization is the best fit.

Other terms describe different ideas: contribution refers to how improvements add value, a competitive market analysis estimates value based on comparable sales, and demand refers to market desire that influences prices.