The income approach to value is based on the principle that something is worth what it will earn. The capitalized value of a given income stream varies directly with the amount of income and inversely with the capitalization rate . . . Indeed, both parties cite and rely upon a textbook produced by the Institute of Appraisers, The Appraisal of Real Estate . The rate or factor selected represents the relationship between income and value observed in the market and is derived through comparable sales analysis. . . Yield capitalization is . . .
Direct capitalization is simple and easily understood.
The capitalization rate or factor is derived directly from the market. . . . According to the testimony of Long, the County utilized a mortgage-equity capitalization approach, a variety of yield capitalization, to value the property. Taxpayers did not address an appropriate capitalization rate in their evidence in view of their contention that valuation should be based upon the cost of constructing the improvements on the property. The Commission thus relied upon the direct capitalization method, see Appraisal of Real Estate , rather than the yield capitalization approach employed by the County or the cost approach advocated by Taxpayers. However, the Commission's final decision fails to disclose the specific capitalization rate it utilized.