When applying the capitalization approach, what does "forecasting" entail?

Forecasting in the context of the capitalization approach involves analyzing past performance and current trends to estimate the future income potential of a property. This analysis is crucial because it provides a comprehensive view of how the property has performed historically, which can be indicative of future performance when combined with current market conditions.

By examining past income data, market trends, economic conditions, and other relevant information, an appraiser can project future income streams. This is essential in the capitalization approach, where the value of a property is derived from its ability to generate income. Understanding historical data allows for more accurate projections, ensuring that the capitalization rate applied reflects both the property's financial history and anticipated future income.

In contrast, focusing only on current income, future market potential, or solely relying on appraisal reports would not provide the holistic view necessary for reliable forecasting. Hence, analyzing past performance along with current trends is key to making informed assumptions about future income generation.