1. INCOME CAPITALIZATION APPROACH TO VALUE  A BASIC INVESTMENT PREMISE IS: THE HIGHER THE EARNINGS, THE HIGHER THE VALUE.  THE PRINCIPLE OF ANTICIPATION IS FUNDAMENTAL TO THE INCOME CAPITALIZATION APPROACH.  VALUE MAY BE DEFINED AS THE PRESENT WORTH OF FUTURE BENEFITS.

2.  AN INCOME RATE EXPRESSES THE RELATIONSHIP BETWEEN ONE YEARS INCOME AND THE CORRESPONDING CAPITAL VALUE OF THE PROPERTY.  AN OVERALL CAPITALIZATION RATE IS AN INCOME RATE FOR A TOTAL PROPERTY THAT REFLECTS THE RELATIONSHIP BETWEEN A SINGLE YEARS NET OPERATING INCOME EXPECTANCY AND THE TOTAL PROPERTIES VALUE.

3.  DIRECT CAPITALIZATION IS A METHOD USED TO CONVERT AN ESTIMATE OF A SINGLE YEARS INCOME EXPECTANCY INTO AN INDICATION OF VALUE IN ONE DIRECT STEP.  EITHER BY DIVIDING THE ESTIMATE BY AN APPROPRIATE INCOME RATE OR BY MULTIPLYING THE INCOME ESTIMATE BY AN APPROPRIATE FACTOR.  THE RATE OR FACTOR SELECTED REPRESENTS THE RELATIONSHIP BETWEEN INCOME AND VALUE OBSERVED IN THE MARKET AND IS DERIVED THROUGH COMPARABLE SALES ANALYSIS.

4.  THE FORMULA USED IN THE INCOME CAPITALIZATION APPROACH IS:  VALUE = INCOME / RATE  WHERE: VALUE IS THE ESTIMATEDVALUE OF THE PROPERTY INCOME IS THE ANNUAL NET RETURN TO LAND RATE IS THE CAPITALIZATION RATE DERIVED FROM THE MARKET

5. CAPITALIZATION RATE  THE CAPITALIZATION RATE IS DERIVED USING COMPARABLE SALES. THE FORMULA IS RESTATED AS: RATE = INCOME / VALUE

6. INCOME  IN ESTIMATING INCOME OWNER - OPERATOR INCOME OR LANDLORD - TENANT INCOME MAY BE USED.  THE LANDLORD-TENANT RENTAL OR LEASE INCOME IS AN ESTIMATE OF THE RETURNS TO LAND AND IS TYPICALLY USED IN RURAL APPRAISALS.

7. CROP SHARE RENTAL AGREEMENTS  THE LANDLORD RECEIVES A PERCENTAGE OF THE OUTPUT, GOVERNMENT PAYMENTS, AND OTHER INCOME.  THE LANDLORD PAYS A PERCENTAGE OF CERTAIN VARIABLE PRODUCTION EXPENSES, EX. FERTILIZER, INSECTICDE, AND GINNING.  THE LANDLORD MAY PAY ALL OR A PORTION OF REPAIRS TO IRRIGATION SYSTEMS.

8.  ADDITIONAL LANDLORD EXPENSES TO BE CONSIDERED IN THE ESTIMATION OF NET RETURNS ARE:  PROPERTY TAXES  REPAIRS  MANAGEMENT