METHODS OF APPRAISING PROPERTIES
There are three approaches to consider in making a market value estimate. These approaches are:
Sales comparison approach. Recent sales and listings of similar type properties in the area are analyzed to
form an opinion of value.
Cost approach. This approach considers the value of the land, assumed vacant, added to the depreciated cost
new of the improvements. This is considered a substitute or alternative to producing a similar improved
property.
Income approach. The estimated potential income of real property is capitalized into value by this approach.
Not only does each parcel of real estate differ in some respects from all other properties, but there are many
different purposes for which an appraisal may be made. Each variation of purpose could result in a considerable,
yet logical, variation of estimated value. For example the nature of the property, whether noninvestment,
investment or service; the purpose of the purchase, whether for use, investment or speculation; and the purpose
of the appraisal, such as for sale, loan, taxation, insurance and the like, all constitute matters which will
influence the proper methods of appraisal approach and the final result reached by the appraisal.
Consequently, the first step in any appraisal procedure is to have a clear understanding of the purposes for
making the appraisal and the value to be sought. The adequacy and reliability of available data also are
determining factors in the selection of the approaches to be employed. A lack of certain pertinent or up-to-date
information may well eliminate an otherwise possible approach.
Each approach is used independently to reach an estimated value. Then, as a final step, conclusions are reached
as to one appropriate value opinion. This procedure is known as reconciliation.