Three Approaches To Value With Property Appraisals

There are three approaches to establish the value of almost anything, and each plays a part in real estate appraisal.

The best widely-used and accepted in non commercial practice is the transactions comparison technique. This approach establishes its judgement of value on what very similar homes in the vicinity have sold for fairly recently, with proper modifications for time, acreage, living area, amenities and so on. It is such modifications where the experience of the professional appraiser becomes necessary-- no software can advise you how much or little to mark up for a fireplace without knowing the area or even talking with Realtors and recent buyers in the area about how important that feature is in that particular location.

A different method is the cost approach. Just how much will a property cost to replace, that is, reconstruct, minus "accrued depreciation," that is, depreciation that has taken place since the property actually was built? The cost approach includes ideas like "economic life" and "effective age" that are typically of use in establishing the value of special use properties, special purpose properties or properties wherein subsequent structural enhancements drastically impact value.

The third method to value is referred to as the income approach. Some properties create income for their owners-- one of the most obvious instances being rental properties for instance apartment buildings, non owner-occupied homes and duplexes and the like. The rental earnings an owner can reasonably expect from a property is part of its value. For a purely owner-occupied housing property, this might not be applicable, but it can be important if the property is to be leased or made use of otherwise to earn income, such as a storage facility, cell tower rental and office building.

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