Income modeling is a valuable methodology that should be part of your tool box for commercial property valuation. But income modeling is not applicable to all types of property. Some commercial property types, such as unusual or special purpose properties, simply don’t lend themselves well to income-based analysis for mass appraisal. Therefire, in addition to the income approach, your toolbox should include other valuation methods such as the cost approach and comparison to sales.
To illustrate the point... Have you ever done a parking lot rate comparison? Or a study of luxury resorts? Perhaps you’ve made a comparative evaluation of small municipal (or private) airports?
If I’m honest, most of my parking lot studies resulted in deselecting outliers from the many properties initially chosen for the analysis. The situations at these properties ranged from multiple client contracts with/without discounting, to varying rates for events, to poor management. Bottom line, most surface parking lots in most areas are interim bare land use until development.
Luxury resorts by design, if not definition, contain highly diverse amenities offered in menu format; yet these amenities are also crafted into numerous curated promotional packages. You must postulate what the typical guest pays for, and then somehow compare this mix of realty and programs with other (too often dissimilar) properties.
Regional or private airports? Well, the truth is many of them simply don’t consider profit as part of their business model.
Mass appraisal is served extremely well by income modeling, but special purpose properties such as those described above really require the more in-depth analysis of a full appraisal, or at least the application of all possible valuation approaches.
If a property type models well, great. But if modeling doesn’t result in reasonable accuracy, don’t do it. Use the right tool for the job.