There are three common approaches, or appraisal methods, used by appraisers to establish property value. After thorough exercise of all three, a final value estimate is determined. When evaluating single-family, owner-occupied properties, the sales comparison approach is heavily weighted by an appraiser.
- Cost Approach – A formula is used to obtain the property value: land value (vacant) added to the cost to reconstruct the appraised building as new on the date of value, less accrued depreciation the building suffers in comparison with a new building.
- Sales Comparison Approach – The appraiser identifies 3-4 comps, or recently sold properties in the neighborhood, ideally sold in the previous six months and within a half-mile of the subject property. A comparison is done between the recently sold properties and the subject property, including square footage, number of bedrooms and bathrooms, property age, lot size, view and property condition.
- Income Approach – The potential net income of the property is capitalized to arrive at a property value. Capitalization is the process of converting a future income stream into a present value. This approach is suited to income-providing properties and is used in conjunction with other valuation methods.