Define 'revenue approach' in the context of appraisal.

The revenue approach, in the context of appraisal, specifically involves valuing a property based on its capacity to generate income. This methodology is particularly applicable to income-producing properties, such as rental apartments, commercial buildings, or hotels. By assessing anticipated revenue streams, such as rents and other income generated by the property, appraisers can estimate the property's value based on the present value of expected future income. This approach takes into consideration factors like occupancy rates, lease terms, and operating expenses, making it a vital tool for investors and appraisers focused on commercial real estate.

In contrast, approaches based on property sales history focus on comparable sales in determining value, while techniques that evaluate previous property values look back at historical data to establish current worth. Lastly, calculations for determining construction costs pertain to the cost approach, where the value is derived from the cost to replace or reproduce the property. The revenue approach stands apart by directly linking value to future income potential, which is crucial for appraising investment properties.