What are the three approaches to value used by appraisers?

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Multiple Choice

What are the three approaches to value used by appraisers?

The three main ways appraisers estimate value are the cost approach, the sales comparison approach, and the income capitalization approach. The cost approach looks at how much it would cost to replace the property, adding land value and subtracting depreciation. The sales comparison approach estimates value by comparing the property to recently sold, similar properties and adjusting for differences. The income capitalization approach determines value from the property’s income-producing potential, using net operating income and a capitalization rate (or a discounted cash flow). These three cover different situations—new or special-use properties, typical market properties, and investment properties—so they’re the standard set used in appraisal. Other options mix terms that aren’t formal appraisal methods.

The three main ways appraisers estimate value are the cost approach, the sales comparison approach, and the income capitalization approach. The cost approach looks at how much it would cost to replace the property, adding land value and subtracting depreciation. The sales comparison approach estimates value by comparing the property to recently sold, similar properties and adjusting for differences. The income capitalization approach determines value from the property’s income-producing potential, using net operating income and a capitalization rate (or a discounted cash flow). These three cover different situations—new or special-use properties, typical market properties, and investment properties—so they’re the standard set used in appraisal. Other options mix terms that aren’t formal appraisal methods.

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