Home Appraisal FAQs - Appraisals What are the "three approaches to value" in a real estate appraisal?
What are the "three approaches to value" in a real estate appraisal?

Cost, Sales Comparison & Income ApproachesThere are three general groups of methodologies for estimating value of real estate. These appraisal methods are usually referred to as the "three approaches to value," and can be briefly described as:

  • Cost Approach - the theory is that the value of a property can be estimated by summing the land value and the depreciated value of any improvements.

  • Sales Comparison Approach - the sales of properties similar to the subject are analyzed and the sale prices adjusted to account for differences in the comparable sales to the subject to determine the value of the subject.

  • Income Approach - In a commercial income producing property this approach capitalizes an income stream into a present value. The appraiser will typically determine which one or more of these approaches may be most applicable (unless required differently by the client), based on the scope of work and from the development of the appraisal analysis.

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