Most appraisers use three approaches to establish the value of a property. The Sales Comparison Approach is normally considered to be the best indication of value for residential property.

Sales Comparison Approach: In this approach the appraiser finds three to four comparable properties in the neighborhood which have recently sold. Ideally, these properties are within a one-half mile radius of the subject property and have sold within the last six months. The appraiser compares the sold properties to the subject property. The factors used in the comparison include square footage, number of bedrooms and bathrooms, property age, lot size, view, and property condition.

Cost approach: This approach considers the value of the land, assumed vacant, added to the cost to reconstruct the appraised building as new on the date of value, less the accrued depreciation the building suffers in comparison with a new building.

Income capitalization approach: In this approach the potential net income of the property is capitalized to arrive at a property value. This approach is suited to income-producing properties and is usually used in conjunction with other valuation methods. The process of converting a future income stream into a present value is known as capitalization.

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