What Are The Three Types Of Appraisals?

The three approaches discussed in real estate appraisal are cost, sales comparison and income. They are methods of analysis, not three interchangeable report products.

Cost Approach

The cost approach considers the land value and the cost to replace or reproduce improvements, with allowance for depreciation. Replacement and reproduction are different ways of considering construction costs.

To develop a cost approach, appraisers consider land value and the cost to rebuild or replace improvements using relevant construction, labor and material information. The usefulness of the approach depends on the property and evidence.

Sales Comparison Approach

The sales comparison approach compares the subject property to similar properties that have recently sold in the same market area. This method examines the sale prices of comparable homes and adjusts for any unique characteristics that might distinguish the subject property from recently sold homes. The approach also considers common property features specific to the local area.

Income Approach

The income approach considers the income-generating potential of a property, including rental or commercial property, in relation to market evidence.

An income analysis may convert anticipated income into a value indication using a capitalization or discounted cash-flow method appropriate to the assignment.

The appraiser selects approaches appropriate to the property and available evidence. Where more than one is developed, the indications are considered together in reaching a conclusion; not every report develops all three.