How Value is Estimated?
There are three basic methods of arriving at an indication of value:
- Cost Approach — estimates the cost to build a new building identical to the subject being appraised, at current prices, subtracting accumulated depreciation and adding the estimated land value.
- Income Approach — relates to income-producing property and is based on the theory that value is the present worth of the income stream which the property is capable of producing when developed to its highest and best use. The net operating income from the property is capitalized into value by an appropriate method and rate.
- Direct Comparison Approach — is based on the theory that an informed purchaser would pay no more for a property than the cost of acquiring another existing and equivalent property. The value estimate is based on the selling price and listings of comparable properties.
To arrive at a final estimate of value, the appraiser selects the value indicated by the approach most appropriate for the property and supported by the most reliable, factual and relevant market data, which has been analyzed and verified.