What is the primary purpose of capitalization in real estate assessment?

The primary purpose of capitalization in real estate assessment is to convert income into an estimate of value. This process involves applying a capitalization rate to the net income generated by a property, which helps assessors determine the present value of the property based on its expected future income.

Capitalization is fundamental in the income approach to valuation, where the focus is on what the property can earn rather than solely its physical attributes or comparable sales. By understanding how much income a property generates, assessors can better reflect its value in the market. This method is particularly effective for income-producing properties such as commercial real estate and rental properties, where potential income is a key factor influencing value.

Other options such as calculating depreciation rates, establishing rental rates, or analyzing market trends, while important in real estate appraisal and assessment, do not directly relate to the core function of capitalization, which is focused specifically on the relationship between income potential and property value.