Real Estate Term of the Day: Appraisal Approach
APPRAISAL APPROACH – one of 3 methods used to estimate the value of property (Barron’s Dictionary of Real Estate Terms)
- Cost Approach – based on the reproduction or replacement cost (new) of improvements, plus the market value of the site
- Market Comparison Approach – value is estimated by analyzing sales price of similar properties (com parables) recently sold
- Income Approach – typically used for commercial properties and uses the principal of direct capitalization (expected annual income vs capitalization rate). This approach is not typically used for residential appraisals
In a residential property appraisal, an appraiser will use a combination of the cost approach and market comparison approach to determine the value of a property.