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J!9BMS AND DEFINITIONS (Continued) <br />INCOME CAPITALIZATION APPROACH• <br />The Income Capitalization Approach consists of capitalizing the net income <br />of the property under study. The capitalization method studies the income <br />stream, allows for (1) vacancy and credit loss, (2) fixed expenses, (3) operat- <br />ing expenses, and (4) reserves for replacement, and estimates the amount <br />of money which would be paid by a prudent Investor to obtain the net in- <br />come. The capitalization rate is usually commensurate with the risk, and is <br />adjusted for future depreciation or appreciation in value. <br />DEPRECIATION: <br />Used in this appraisal to indicate a lessening in value from any one or more <br />of several causes. Depreciation .is not based on age alone, but can result <br />from a combination of age, condition or repair, functional utility, neighbor- <br />hood influences, or any of several outside economic causes. Depreciation <br />applies only to improvements. The amount of depreciation is a matter for <br />the judgment of the appraiser. <br />HIGHEST AND BEST USE: <br />Used in this appraisal to describe that private use which will (1) yield the <br />greatest net return on the investment, (2) be permitted or have the reasona- <br />b!e probability of being permitted under applicable laws and ordinances, <br />and (3) be appropriate and feasible under a reasonable planning, zoning, <br />and land use concept. <br />L.IDGARD AND ASSOCIATES <br />APPRAISURS-CONSV LTANTS <br />12 <br />20D-27 <br />