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If the settlement doesn't have the highest tier of wall it can have, you could be setting it back by over 50 turns of growth.
Not only that, the infrastructure you lose is worth many thousands of florins. A top tier settlement with costly improvements could also be losing about 30 to 50k florins in infrastructure alone.
Extermination is only meant to be as a last resource. Either you don't plan on holding that territory, you MUST keep advancing with the army, or you simply have no hope of maintaining public order.
Sack kills of a bit of the population (I remember it being 25%, but could be wrong as well). It also gives you a lot of cash. It lowers your reputation (not as bad as exterminating) and it doesn't completely trash the settlement.
This option is useful if you're conquering lands not faithful and you don't care about the reputation hit. It can also be used to help move wealth around or just give you cash.
I honestly think occupy is better most of the time. You don't lose population or infraestructure. The downside is the public order on big cities.
Smaller cities will not be too difficult to keep in control. And as theh grow bigger, you can move smaller militia armies behind your mind troop so it is them that can stick around and maintain order.
Also, a lot of people sack or exterminate with the intent of pushing forward but then they find out they can't. It is a big loss of they do that. You want to have the way ahead scouted to make an informed decision.
If you still need to sit in the conquered settlement for a bit, then maybe a couple churches and militias can change that in a couple turns.
Needs a mod to rectify, simply play my Bare Geomod set up, it's the grand campaign with a number of fixes: https://www.twcenter.net/forums/showthread.php?352216
Just sack, always sack settlements and ransom prisoners, it's the best way to go.
These regions are also near by which means once they are under his control they will benefit from his nearby region's religion influence on neighbouring regions. So he should certainly occupy and keep them, simply making sure to have some low cost garisons on stand by to move in to keep the piece initially.
Sacking makes limited sense (considering the global standing malus) if the region is far from one's kingdom as one does not wish to keep it anyhow, but not when it's close or even bordering.
Personally I rather occupy, destroy all buildings and move on when it comes to far away settlements. MUCH more effective.
Because I am either going to lose it, if I move my army out, or keep them in it, and pay an amount of wages that makes having Cairo in my domain a net loss, i sacked the city. Then, I razed all the destroyable buildings, and set up a church there (just to get the religion a little bit moving in the right direction.
That gave me enough money to grab Alexandria, (convert to castle) and Gaza, which I wont need a big garrison to keep.
Frankly, cities away from your power base aren't worth the headache, so this is my typical action to them. Jerusalem is different, as a victory condition.
Sometimes i deliberately make a city rebel if i am running low on viable crusade targets and the Pope just has a stupidly short list of stupid crusade options that i don't like.
Sack is a little more complicated as you can do it if you need money, need to reduce the pop for whatever reason, know you won't be able to hold the city and so are grabbing a little cash before running off or you want to do something special with the city like sack raze it where you draw as much money and resources as you can out of the city before burning everything to the ground and letting the AI pick up the pieces.
Raze is really not a good idea outside of very special circumstances, the rep hit is bad, the money is not really worth it, it can technically be good for public order but only because you have set the city back several if not dozens of turns in growth, in the very late game this option is basically out of the question unless it is a city you have no use or need for outside of having the territory for the sake of painting the map with your faction color. Early on, specifically the mid game when crusades and Jihads begin you can use this feature to weaken and heavily impede the progress of the AI opposition by turning their capture point city and the surrounding region into a wasteland and thus make subsequent battles easier as the region will be far behind in development compared to the rest of the world and it will make it easier to take the regions in the late game when you actually can reasonably hold them as you have been stifling and weakening them under the pretense of participating in the Crusade or Jihad that in reality you don't really care about.
However if you want to gain reputation and traits then razing and sacking can be beneficial for a role play character/general or for gaining specific traits especially if you are trying to go full dread. Additionally if you want to do razing strategically, create a second army built for it, basically a siege cheese army and while fighting an AI faction, sail or walk this army into the rear of their territory and burn it all to the ground while looting the hell out of their cities, gaining you a lot of extra gold while tearing down their economy and manufacturing capabilities making the war increasingly untenable, this works more in the later mid or early late game as the factions will be pretty large and fighting large scale wars without the ability to raise more armies is going to be very bad for the AI side of the fight. I did this with a battlefield assassin army to ruin spain once as the spanish AI had wiped out everything from the left side of north africa to the middle of the holy roman empire so this army snuck into their rear and knocked out their fresh recruits and looted their settlements while my main force fought them in germany and a smaller detachment very slowly conquered the Iberian peninsula and north africa behind my battlefield assassin force so in practice the razing of the AI's eco and manufacturing is viable in my experience, but it did put the region behind the rest of the world and honestly I could have done without the strat and just opened a normal two front war and used basic occupy, razing helped win the war faster but wasn't 100% necessary. I know some people loot and raze religiously because it allows them to build up a decent piggy bank of florins and lets them maintain and upgrade multiple armies very early on but this is the equivalent of the murder hobo life style in medieval 2 and it is definitely not for everyone.