When using the income approach, what does the appraiser determine using market rents?

In the income approach to appraising real estate, market rents are pivotal in determining the potential gross income. This figure represents the total income the property would generate if it were fully rented at current market rates, without accounting for any vacancies or credit losses.

By assessing market rents, an appraiser is able to estimate what income a property could ideally achieve in a competitive market scenario. This is crucial because potential gross income serves as the starting point for further calculations in the income approach, such as deducting operating expenses to arrive at the net operating income.

Subsequently, net operating income and effective gross income both rely on the potential gross income as the initial benchmark, making this measurement essential for a holistic understanding of a property's income-generating capabilities. Hence, identifying potential gross income is a foundational step in the appraisal process for income-producing properties.