There are three ways to determine the value of anything, and each plays a part in property appraisal.  One of the differences between an "appraiser" and a "professional appraiser" is the professional appraiser knows when to apply each of the three recognized approaches to any given appraisal assignment in order to arrive at an accurate value conclusion.  Here at S.M. Davidson & Associates, our extensive education and experience has benefited our clients for more than 30 years.

SALES COMPARISON APPROACH
The most widely-used and accepted methodology in appraisal practice is the Sales Comparison Approach.  This approach bases its opinion of value on what similar properties in the vicinity have sold for recently, with appropriate adjustments for time, building size, quality, condition, and so on.  It is these adjustments where the expertise of the professional appraiser becomes necessary -- no computer can tell you how much or little to mark up for a given unique property feature without knowing the neighborhood or even talking to Realtors and recent buyers in the area about how important that amenity is in that particular location.

COST APPROACH
Another approach is the Cost Approach.  How much would a property cost to replace, that is, rebuild, minus "accrued depreciation," that is, depreciation that has occurred since the property actually was built?  The cost approach includes concepts like "economic life" and "effective age" that are mostly of use in determining the value of special use properties, special purpose properties or properties where subsequent structural improvements greatly impact value.

INCOME CAPITALIZATION APPROACH
The third approach to value is called the Income Capitalization Approach.  Some properties generate income for their owners -- the most obvious examples being rental properties such as apartment buildings, non owner-occupied houses and retail centers and the like.  The rental income an owner might reasonably expect from a property is part of its value.  For a purely owner-occupied residential property, this may not be applicable, but it can be important if the property is to be rented out or used otherwise to generate income, such as a storage facility, cell tower rental and office building.