Which appraisal approach utilizes a capitalization rate?

The income approach is the correct answer because it specifically focuses on the profitability and potential income generation of a property. This method relies heavily on the capitalization rate, which is a key factor in determining the value of an income-generating property. The capitalization rate is calculated by taking the expected net operating income (NOI) of the property and dividing it by the property's current market value or purchase price. This allows appraisers to assess how well a property is expected to perform financially.

In contrast, other approaches do not use a capitalization rate. The cost approach estimates value based on the cost to replace or reproduce the property, minus depreciation. Tax assessment focuses on valuing property for tax purposes and may not involve the income components necessary for capitalization. Lastly, a comparative market analysis estimates value based on the sales prices of similar properties, emphasizing market trends and comparable sales rather than income potential. Thus, the unique reliance of the income approach on the capitalization rate makes it the appropriate answer.