What is a critical characteristic of an effective appraisal?

An effective appraisal must incorporate the potential income of the property because one of the key purposes of an appraisal is to determine the property's value based on its ability to generate revenue. This aspect is particularly significant in investment properties, where potential income can be a vital indicator of market value. Income-producing properties are evaluated not just on recent sales or market trends but also on the expected revenue they can generate, their operating expenses, and overall financial performance.

Including potential income in an appraisal allows for a more comprehensive analysis, providing insights into how the property fits within the broader market context and its attractiveness as an investment. Elements like cash flow projections, capitalization rates, and comparable income properties typically underscore the importance of this characteristic in arriving at an accurate appraisal figure. Thus, considering the potential income is essential for making informed real estate decisions.